Simple Steps Can Safeguard 401(k) Plans
Take a deep breath, 401(k) participants, and be prepared to blow the whistle.
Hundreds of small and midsize companies may be misusing or stealing workers’ contributions, according to a Labor Department investigation reported in The Wall Street Journal last week. But that isn’t the only potential problem participants encounter.
As many as 30 percent of small companies are goofing up one of the many calculations they use to determine the value of a 401(k) account or benefit, says Paul Holzman, principal of the National Center for Retirement Benefits, a Northbrook, Ill., company that audits retirement-plan payouts. Such errors almost always go unnoticed by employees, who typically aren’t familiar with the formulas used by their plan.
``Don’t take anything for granted,″ says Karen Ferguson, director of the Pension Rights Center, a Washington retirement-benefits advocacy group.
Unlike a traditional defined-benefit pension plan, a 401(k) does not offer a fixed, guaranteed retirement benefit. Instead, the so-called defined contribution plan allows employees to save a portion of their pretax salaries for retirement. Participants’ future retirement income depends in large measure on how much they save and the returns earned by the investments in these tax-deferred accounts.
First off, implores Labor Secretary Robert B. Reich, use common sense. Make sure the amount of money withheld from your pay matches the contributions that have been deposited in the plan. You can check this by comparing information from your pay stubs with your 401(k) statement, and in some cases, by calling the investment manager to find out your account balance, he says. The Labor Department’s Pension and Welfare Benefits Administration, which is overseen by Mr. Reich, is launching a nationwide education campaign to alert employees to signs of fraud and promote simple steps like these.
Also, bone up on how your plan works, and on your rights as a participant. ``Given the limited resources at the Labor Department, employees have to serve as watchdogs of their own benefits these days,″ says Shaun O’Brien, a staff attorney at the Pension Rights Center.
He and other experts offer the following tips:
_ Review a copy of your plan’s ``summary description.″ This document lays out the procedures followed by the plan and lists important sources of information, such as the company or person who serves as the plan’s trustee, and the so-called plan administrator, who oversees the daily management of the plan.
_ Spend an hour or so looking over the formulas that determine your benefits, especially your eligibility and vesting calculations, says Robert Lebenson, president of Lebenson Actuarial Services of Las Vegas, an employee-benefits consulting firm. You should also review any returns shown in your plan’s summary annual report, he says.
_ Learn how contributions are deposited into the plan. You can find this information in the plan description, or ask your benefits representative to explain it.
By law, companies must deposit employee contributions into a plan within 90 days. But don’t assume your boss follows this rule. The Labor Department is currently investigating hundreds of companies that may have misused or stolen employee contributions to 401(k) plans.
Employer matching contributions are another story. A company is legally allowed to take as long as a year before adding matching contributions to your account. Just more than one-half of companies deposit their matching funds at the same time they add your payroll deductions to your account, according to a survey by the Profit Sharing/401(k) Council of America, a Chicago group that promotes the use of 401(k) plans among companies. Some 36 percent of companies add their contributions to your account each month, while 8 percent deposit the sum once a year, according to the survey.
_ Ask for an interim statement. If you are lucky, you work for one of the small number of companies that offer ``daily valuation.″ These plans tally your account balance each day and often offer a phone number you can call to check your account balance and returns.
Most employers don’t offer this perk. Instead they provide statements to participants at the end of each month, quarter or year. ``That makes it pretty difficult to tell whether your contributions have been credited properly, or if they’re being allocated to the right types of investments,″ says Victoria Quesada, a West Hempstead, N.Y., attorney who represents participants and beneficiaries.
If your employer is among the 47 percent or so that value your account on a quarterly or annual basis, ask your plan trustee for an occasional update, says Mr. Lebenson, the benefits consultant. Companies aren’t required to provide you with the current value of your account, but many will.
_ Don’t call the authorities unless you smell a crime. First, file a written claim with the plan administrator listed in the summary plan description. A plan administrator must respond to your questions and give an explanation for any denial of benefits.
You can appeal the matter if you aren’t happy with the answer.
Still not satisfied? Then it’s time to contact the nearest regional office of the Pension and Welfare Benefits Administration, listed in the government pages of your local phone book.