Saving for retirement is hard enough these days but now comes word that one of the all-time safest ways of doing that, the 401(k) retirement plan companies offer their employees, may not be as safe as you thought. I don't mean safe from volatile market swings, I'm talking about safe from fraud and theft.
In the last three months, the Labor Department has launched 191 investigations into 401(k) fraud and theft, and secured 20 indictments. To put this into perspective, those 20 indictments are 43% more than what the Labor Department has secured on an annual basis since 1995, according to a report in the Wall Street Journal.
The indictments cover millions of dollars in savings and shed light on some disturbing issues related to the $3 trillion 401(k) market, such as lack of oversight and an understaffed enforcement agency.
According to the Journal, the Labor Department strengthened its enforcement efforts this fall in response to growing indications of trouble with retirement plans.
Phyllis Borzi is the Assistant Secretary of the Employee Benefits Security Administration (EBSA), which is the division of the Department of Labor (DOL) tasked with investigating the charges and getting the indictments. She says they had received more reports of fraud, where employers apparently intended to keep the stolen money, as opposed to the more sympathetic case of a struggling business owner juggling funds to meet immediate business needs during these difficult economic times.
Smaller companies
Many of the Labor Department's investigations involved smaller companies. One such firm mentioned in the Wall Street Journal article was a 19-person law firm in Savannah, Georgia.
Benjamin Eichholz, the sole trustee of the firm's retirement plan, was accused of stealing more than $950,000 from the plan. Eichholz pleaded guilty to obstruction of justice for providing false documents and statements to investigators. A grand jury indictment had accused him of writing checks from the plan as if employees were taking loans. Instead, he deposited the money in his own accounts.
The Labor Department investigations involve only a fraction of the 401(k) plans there are in this country. But that's little consolation to the employee who has seen his or her retirement savings wiped out, not be a down market, but by a larcenous boss. An employer who raids a 401(k) plan typically ends up also siphoning funds from employees' health care or life insurance premiums and other benefits as well.
Even with the added attention of regulators and investigators, it's impossible for government employees to catch every irregularity. Many cases don't even begin until workers call to complain about problems with their plans. It's important that you check your account balance regularly and read the statements you get in the mail. You should also make sure you know how much money should be flowing into your account and how it's supposed to be invested.
The Labor Department has issued a list of warning signs to look out for and report if you think your employer is doing something shady with your 401(k).
1. Your 401(k) or individual account statement is consistently late or comes at irregular intervals
2. Your account balance does not appear to be accurate
3. Your employer failed to transmit your contribution to the plan on a timely basis
4. A significant drop in account balance that cannot be explained by normal market ups and downs
5. 401(k) or individual account statement shows your contribution from your paycheck was not made
6. Investments listed on your statement are not what you authorized
7. Former employees are having trouble getting their benefits paid on time or in the correct amounts
8. Unusual transactions, such as a loan to the employer, a corporate officer or one of the plan trustees
9. Frequent and unexplained changes in investment managers or consultants
10. Your employer has recently experienced severe financial difficulty
