Nest Eggs Left in Employers’ Care Need Watching, Experts Say

Millions of American workers and retirees depend on income that they expect to receive or are receiving from a pension fund. Should they be frightened by stories of abuses and the government’s difficulties in monitoring pension plans?

“They need to be alert, not alarmed or terrified,” said Karen W. Ferguson, director of the nonprofit Pension Rights Center here. “If they don’t look at what’s going on with their pension money, maybe nobody is looking.”

Indeed, the government’s own figures show that fewer than 1% of the nation’s 870,000 pension plans are examined every year by the appropriate Labor Department agency. The larger funds must be checked by outside auditors and must file annual reports with the government. Those with fewer than 100 members don’t have to have outside audits; they report to the government every three years.

So, Ferguson says, you have to be your own watchdog. That can be a daunting task.

The starting point is the annual financial summary of the plan that your employer or former employer provides. This statement of one or two pages can be a useful indicator of how well the pension fund’s investments are faring and may show where the plan has lost significant amounts of money, but it does not tell the whole story.

If you ask in writing, your employer is required to provide you with a copy of the detailed financial report the plan files with the government. This is a Form 5500 or, if the plan has fewer than 100 participants, a Form 5500C.

Understanding this form does not require a degree in accounting if you know the basic laws governing how the pension plan may invest money and if you learn a little about how to read the form.

The law, according to the Pension Rights Center, can be simplified into four rules:

--Pension money must be invested in the interest of the beneficiaries. It may not be used to benefit the people who make the investments or to further the interests of the employer or the union.

--Administrative costs and expenses such as salaries, office rent and travel must be reasonable, and full-time company or union employees may not be paid for managing the fund.

--Investments must be diversified. Fund managers are not permitted to put all of the money into one stock or real estate deal. They have to spread it around so that one bad investment cannot wipe out the fund.

--The managers are required to demonstrate skill and prudence in investing and protecting your money. They are to avoid investments that could result in large losses. They cannot avoid risk, but the risks taken should be reasonable.

These rules and a map to understanding Form 5500 are available in a guide published by the Pension Rights Center, a nonprofit organization that works to educate the public about pension issues and to protect the rights of workers and retirees.

The booklet, “Protecting Your Pension Money,” may be ordered for $6 from Pension Publications, Box D, Suite 704, 918 16th St. NW, Washington, D.C., 20006.

If you suspect trouble with your pension plan, you may contact the Labor Department Pension and Welfare Benefits Administration, which has its headquarters in Washington and field offices in 14 major cities, including Los Angeles (Room 718, 3660 Wilshire Blvd., Los Angeles, 90010).

Agency officials say that they take complaints seriously, but some people have had problems getting the department’s attention. The officials recommend that you accompany your letter with a written summary of the problems you have uncovered, along with supporting documents.

If your employer goes out of business and your plan does not have enough money to meet its obligations, your pension may be taken over by the federal Pension Benefit Guaranty Corp. The agency insures the pensions of about 40 million Americans who have defined-benefit plans, the kind that promise a specific amount of money upon retirement.

Your rights with the PBGC are explained in “Your Pension, Things You Should Know About Your Pension Plan,” published by the PBGC and available for $1 from the Superintendent of Documents, Government Printing Office, Washington, D.C., 20402-9325.