Helping Workers When Firms Help Themselves to Benefits Funds

A year-old amnesty program aimed at uncovering and correcting 401(k) abuses has resulted in the recovery of $5 million in retirement savings for 16,800 workers in its final six months, according to the Labor Department. Now labor officials are urging consumers to help them uncover--and nab--violators that haven’t come forward.

“American workers are often the first line of defense to catch problems with benefit programs early,” said Labor Secretary Robert Reich. “We are equipping workers with the tools to assist the department in policing plans, and ultimately to preserve pension dollars for their retirement.”

In an effort to help individuals monitor their pensions--and turn in employers that aren’t complying with the law--the department has put out a free booklet, “Protect Your Pension: A Quick Reference Guide,” that explains how to keep track of your own retirement savings.

The booklet runs through your rights and the pension rules set out in the Employee Retirement Income Security Act--better known as ERISA--which governs many of the nation’s health and welfare benefit plans. And it explains how to navigate complicated pension forms in order to recognize violations.

The booklet, which can be ordered by calling (202) 219-9247, also lists Labor Department regional and district offices that can handle pension questions and complaints. It’s just one in a series of moves labor officials have made over the last year to counter a small but growing trend of fraud involving financially troubled firms raiding worker pensions to gain operating capital.

The so-called pension payback program was launched late last year after labor officials began receiving hundreds of complaints about companies diverting worker contributions to 401(k) plans for other uses.

Although 401(k) fraud is believed to affect a tiny fraction of the hundreds of thousands of plans now operating, it can have a devastating impact where it does hit. That’s because workers, who have been setting aside their own money for retirement, often discover that their contributions were misdirected when it’s too late--after the company has failed and the money has long been spent. At that point, recovering the employees’ dollars is all but impossible, labor officials say.

The payback program allowed employers to turn themselves in and return the money they misappropriated, plus interest, without fear of further government reprisal.

Since its inception, labor officials have opened 1,178 investigations, including 434 that have been closed. Nearly $10 million has been repaid to worker pensions as a result. In addition, 59 criminal cases were opened, with six resulting in guilty pleas.

“We’ve had cases all over the map--technology companies, law firms, doctors, credit unions, industrial companies,” said Olena Berg, assistant secretary of pension and welfare benefits at the Labor Department in Washington. “People gave us excuses ranging from computer errors to admitting that they diverted the money to pay other business expenses.”

Labor officials stress that the bulk of the problems have been discovered at small firms. At large firms, where pension fraud would require the complicity of many individuals, it’s relatively rare. Only a handful of companies that voluntarily turned themselves in had more than 100 employees, officials said.

In addition, healthy companies with steady profits rarely raid their pensions, Berg said. The pension problems almost exclusively involve companies that were financially strapped and looking for ways to stay afloat.

“The last thing we want to do is discourage people from contributing to 401(k) plans,” Berg said. “They remain a very attractive employee benefit. Obviously, some problems exist and consumers need to know how to spot them. But they also need to realize that the problems are rare.”

What are the warning signs that your pension may be at risk?

* Trouble getting statements on time. If your statements suddenly are being issued late or at odd intervals, you should check with your benefits department to find out why. In some cases, it can be the result of administrative changes. In others, it’s a sign that the plan is playing with it’s numbers.

* Difficulty getting required distributions. If retired former co-workers say they can’t get the pension plan to pay them what’s due, start checking further.

* Consistent losses. When investment returns are generally hot, you need to ask questions if your pension’s returns are not. It’s possible for any investment manager to have a bad year, but if the bad years keep stacking up, it may be a sign that your plan is not investing in the best interest of workers, as it is required to do by law.

* Mismatches. Keep track of how much you’re contributing to the pension and then match your records to the periodic reports you receive from the plan. These statements should indicate the amount both you and your employer have contributed, plus the rate of return you’ve earned on your investments. If the numbers don’t match, it’s possible that your employer is illegally holding or diverting your contributions.

* Insider transactions. Be wary of pensions that loan money to corporate insiders or take part in any other deal that benefits managers at the risk of the pension.

* Diversification. Workers are usually able to decide how to invest their 401(k) dollars. However, your company ought to be giving you several choices, such as stock, bond, money market and fixed-interest funds. If the company gives you only one choice--say, the company stock fund--that’s a red flag.