Protect Your 401(k) Piggy Bank
Some companies' misuse of employee plans prompts Labor Department warning to workers.
By Frank Swoboda
(c) The Washington Post
Sunday, December 3, 1995; Page H04
Every week for eight years, Robert Fisher had Winom Tool and Die Inc. deduct $75 from his
paycheck as a contribution to his 401(k) savings plan. The 39-year-old, Flint, Mich., machine
repairman planned to use the money to help send his three children to college.
But this year Fisher and 13 other Winom employees participating in the company savings plan
discovered an awful truth. Their boss had stolen the money they had been contributing -- more
than $200,000 -- and they had nothing. Winom owner Thomas Brown pleaded guilty last month to
making false statements. Brown faces up to six months in jail and a $10,000 fine when he is
sentenced in February.
Fisher, in the meantime, is out the $25,000 he had contributed over the eight years.
Fisher said he still holds out hope that someday he'll get the money back. Until then, he said, "you
learn to live with it."
Winom started the savings plan in 1987 and initially put the employees' money in it. But in the early
1990s, Winom began having financial troubles and the company started using the money to keep
afloat financially, Fisher said. Winom eventually was forced into bankruptcy and liquidated. Fisher
said he can tell from the bankruptcy records the exact day Winom took the money out of his
account, just months before going out of business.
When employees questioned the company about the savings plan accounts, Fisher said, Brown
would call up the accounts on a computer and assure employees everything was all right.
"It was a valuable lesson. I know what to look for now," said Fisher, who now works maintaining
machines for another company.
The story of Robert Fisher and others like him surfaced last month as part of a Labor Department
crackdown on pension fraud involving the misuse of savings plan money by employers. Voluntary
savings plans have become the fastest-growing type of pension plan in the past 10 years, rising
from 17,000 plans covering 7 million people in 1984 to 140,000 plans covering 22 million people
today.
Unlike the older-style "defined benefit" plans, 401(k) savings plans are not insured by the federal
government. Defined-benefit plans are those in which an employer makes a promise to pay an
employee a certain level of benefits in retirement regardless of the amount of contributions. A
savings plan is known as a "defined contribution" plan and the level of benefits depends entirely on
how much money employer and employee contribute to it, and how its investment perform.
"Most Americans who contribute to 401(k) plans never worry about the safety of their
investment," Labor Secretary Robert B. Reich said recently. He said administration of the vast
majority of savings plans is "safe and honest," but some employers have come to regard the money
in their employees' savings plan as "an interest-free loan, a revolving loan fund." Reich admitted,
"We don't know how big this problem is."
The Labor Department said it started the crackdown on savings plans after its investigators began
noticing an increase in the number of employee complaints earlier this year.
Since then, the
department said, its investigations of 310 companies have resulted in $3.5 million returned to
company savings plans, $2.6 million of that voluntarily restored once the government contacted the
employer.
For those employers who do play around with savings plan money, Reich said he had a simple
message: "Hands off."
Labor Department regulators called on employees themselves to help monitor their own company
savings plans, looking for signs that something may be wrong and then reporting their employer to
the government.
To help, the Labor Department has issued a list of 10 warning signs for employees enrolled in a
401(k) savings plan:
Your statement is consistently late or comes at irregular intervals.
Your account balance doesn't appear to be accurate.
Your employer held your contribution for more than 90 days before depositing it in your account.
There is a significant drop in your account balance that can't be explained by normal fluctuations in
the market.
You receive savings plan statements that do not list your paycheck contribution.
Investments listed on your statement aren't what you authorized.
Former employees are having trouble getting their benefits paid on time or in correct amounts.
You see unusual transactions such as a loan to the employer, a corporate officer or one of the plan
trustees.
There are frequent and unexplained changes in investment managers and consultants.
Your employer has recently experienced severe financial difficulty.
The department is encouraging employees who see any of the warning signs to contact either the
regional or national offices of the department's Pension and Welfare Benefits Administration if they
don't get satisfactory answers from their employer.
The department also is considering changes in federal regulations to limit the amount of time an
employer has to put employee payroll deductions into the savings plan.
Current regulations give
employers up to 90 days to make the investment.
Reich said the government is seeking legislation that would require auditors to immediately notify
the Labor Department if they discover any irregularities in a savings plan.
Under current law,
auditors can wait until they have completed their audit before they are required to notify the
government. The difference, according to Reich, can often be more than half a year.
