Ten signs your 401(k) is being looted
Commentary: Your own CEO may be ripping you off
By Chris Pummer, CBS.MarketWatch.com
Last Update: 7:48 AM ET Nov. 20, 2002
SAN FRANCISCO (CBS.MW) -- Nothing's sacred when your own company's top execs would rob your 401(k) fund. Yet such thievery has occurred at a record rate this year -- and most 401(k) investors have been little warned.
The business media made headlines of Enron employees' 401(k) losses -- and nothing of the Feds quietly settling with executives of hundreds of companies for looting employees' retirement assets. Those execs tapped into 401(k)s for accessible cash or delayed making millions in deposits to keep their failing enterprises afloat.
In the year ended Sept. 30, the federal Pension and Welfare Benefits Administration closed a record 4,925 civil cases involving pension-fund misuse, with 1,940 settled for a record $832 million in monetary damages. Most involved 401(k)s.
Assistant Labor Department Secretary Ann Combs released those figures Nov. 4 at a Society of American Business Editors and Writers conference at the University of Pennsylvania's Wharton School. Yet the assembled watchdogs made little of her disclosure.
Combs' division opened 155 criminal cases that resulted in 134 indictments, largely against small, private companies. Still, none approached the headlines afforded unindicted Martha Stewart, whose insider-trading probe pales in its impact on average investors.
While Enron execs sold millions in stock while claiming the company was healthy, and then barred employees from selling shares held in their 401(k) accounts, these criminal cases involve execs who were so convinced desperate times call for desperate measures that they seized their employees' assets to rectify their bad management.
The PWBA, admittedly under funded for enforcement, notes the abuses involve only "a small percentage" of employers. Still, its Web site lists "10 Warnings Signs That Pension Contributions Are Being Misused." Here they are in bold, with further explanation of what might be transpiring:
Your 401(k) or individual account statement is consistently late or comes at irregular intervals. Inquire of the mutual-fund company administering your plan what's going on and the call-center rep pleads the Fifth. "On the advice of counsel, I decline to answer that question" -- or words to that effect. There are, after all, plan-management fees at stake.
Your account balance does not appear to be accurate. This, of course, is hard to reconcile when the market's made chopped liver of your retirement assets. But if your money-market fund balance is suddenly zero, be afraid, be very afraid. Your neck's been bitten and your lifeblood's being sucked.
Your employer failed to transmit your contribution to the plan on a timely basis. When you put the question to payroll, a usually amiable clerk is seized by a sudden twitching fit and starts shouting, like an accessory-after-the-fact under a police spotlight -- "The check's in the mail! The check's in the mail!" -- while avoiding all eye contact.
A significant drop in account balance that cannot be explained by normal market ups and downs. In other words, you bailed on all growth-stock funds a full two years ago, but your balance has dropped like a reincarnated Herbert Hoover's returning as president.
401(k) or individual account statement shows your contribution from your paycheck was not made. This one's painfully obvious: A big honking "0" under the listing "Contributions this quarter."
Investments listed on your statement are not what you authorized. In this case, you may suddenly be asking yourself: "When did I request that 100 percent of my funds be put into company stock?"
Former employees are having trouble getting their benefits paid on time or in the correct amounts. This is a testament to the honor among thieves: There is a rip-off pecking order -- the traitors who jumped the sinking ship early on are the first to get ransacked. You're likely next to walk the plank.
Unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees. Your immediate reaction: "Oh, sure, like I'd loan a guy making A HUNDRED TIMES what I earn money from my meager retirement savings!"
Frequent and unexplained changes in investment managers or consultants. This shows there's also honor among Mafia consiglieri -- some refuse to be party to the fraud, but unfortunately, they're not snitches, either.
Your employer has recently experienced severe financial difficulty. This isn't entirely fair -- we all fall on hard times occasionally. But if you're being asked to lie to creditors -- a.k.a. "The check's in the mail" -- give notice, clear out your desk and immediately rollover your 401(k) funds into an IRA lest you be one of the perceived traitors the crooks loot. Chris Pummer is personal finance editor for CBS.MarketWatch.com in San Francisco.
Article supplied by Tony Cucurullo