Q & A : Pay Attention to Your Pension Plans, Advises Labor Watchdog
Olena Berg’s job is to worry about your pension.
As head of the Labor Department’s pension and welfare benefits division, she orders inquiries and enforces laws designed to protect the integrity of 401(k) and other employee plans.
Recently, her department detected a small but rapidly growing problem involving companies using worker 401(k) contributions for company expenses.
Berg, formerly a deputy treasurer for the state of California, now oversees about 700,000 company-offered pension plans with assets in excess of $3 trillion.
She watches over an additional 6 million health and welfare programs offered by private employers and labor unions.
Are pensions safe? Do people save enough for retirement? Berg recently discussed some of these issues on a visit to Southern California:
Q: Over the last year, your department has launched several initiatives to crack down on companies that abscond with worker 401(k) money--or drag their feet about passing it on to plan administrators who invest the money on behalf of workers. Is there a serious fraud problem with 401(k) plans?
A: We now have 600 active investigations. In the context of the 150,000 defined contribution plans that we oversee, that’s a very small number. On the other hand, the pace that we’re opening investigations has certainly picked up since November. And the other thing that gives us cause for concern is that our “hit rate”--the rate that we’re finding violations in companies under investigation--is twice as high with 401(k) plans as with other types of plans.
*
Q: Do workers have to worry about the safety of their 401(k)s?
A: Violations occur in a very small percentage of plans. The one thing we don’t want to have happen is for people to think, “Oh, my 401(k) is not safe, so I’m not going to contribute to it.” The 401(k) is still one of the most attractive tax-advantaged savings vehicles available.
*
Q: Is there anything specific that workers should do to ensure the safety of their pensions?
A: Pay attention. Keep track of how much you are contributing, and make sure that matches the amount that’s reported on your earnings and contribution statements. If there’s a discrepancy, call the plan administrator first. But if you can’t get a satisfactory answer, call us too.
*
Q: Is there a national toll-free number that people should call if they suspect 401(k) fraud at their company?
A: No, they should just call the nearest Department of Labor office. Any of our offices can handle it.
*
Q: Are you familiar with congressional efforts to reform health insurance plans?
A: Yes. The administration is very supportive of the Kennedy-Kassebaum bill. What it would begin to do is bring portability to the health insurance market by limiting the restrictions on preexisting conditions.
*
Q: How does it work?
A: There’s a formula that they’d use to administer the law. But in essence, if you had been participating in a health plan on a continuous basis, this would give you the ability to obtain health insurance coverage at a new job. That would eliminate what we call job-lock, where somebody has an opportunity to take a better position at another company but can’t because they or somebody in their family suffers from a serious preexisting condition.
With this bill, your new employer would have to make you eligible to enroll in their health plan.
*
Q: What is your biggest concern about American workers going forward?
A: Retirement. The studies run the gamut. Some say workers today are much better prepared for retirement than their parents were. Others say they’re much worse. In general, I think that we are probably a little ahead of where our parents were. The question is, what will happen going forward?
There have been a lot of behavioral changes since our parents were working. They didn’t save as much as soon, but they had their kids right away. Baby boomers waited to have kids. As a result, at the point that their parents were saving furiously for retirement, a lot of baby boomers have to worry about paying for their kids to go to college. Our parents also settled in with one company and stayed there, earning a pension. Now it’s clear that that pattern of long-term employment is not going to be there.
*
Q: What’s the solution?
A: We think workers need to put more aside. Between one-quarter and one-third of all workers who are offered 401(k) plans at work don’t contribute at all. Many others don’t contribute the maximum amount possible. But what’s even more troubling is that when people switch jobs prior to retirement, 79% don’t roll their pension into another qualified plan. They spend it. We are trying to get the message across that if you don’t want your spending power eroded in retirement, you need to do more to save.
*
Q: Over the last several years, it seems that companies have been cutting back on employee benefits--requiring bigger co-payments for health insurance and switching from company-funded pensions to worker-funded pensions, for example. Are there any benefits that companies are required to offer?
A: Not really. The law allows companies a lot of latitude over what they can provide. What we regulate is that they follow their own rules and don’t provide benefits to some workers and not to others.
*
Q: Some companies do provide more benefits to their executives than to lower-level workers. Does that violate labor laws?
A: Not necessarily. Some companies have both qualified plans, which are provided to all workers, and nonqualified plans that are provided only to managers. It’s fine to have both. But companies get tax breaks for offering qualified plans. They don’t get the tax breaks for nonqualified plans.
*
Kathy M. Kristof welcomes your comments and suggestions for columns but regrets that she cannot respond individually to letters and phone calls. Write to Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or message kristof@news.latimes.com on the Internet.
