Is the boss dipping into your retirement nest egg?
More than 20 million Americans are saving for their golden yearsthrough 401(k) plans - tax-sheltered accounts that siphon pretaxpayroll deductions into investment vehicles such as mutual funds.
Most savers assume that their 401(k) funds are safe and growing- but that's not always the case.
Consider what happened to Robert Lindsay of Palatine.
In February, Lindsay discovered that his newborn son neededsurgery and a monthlong hospital stay to correct a throat problem.He didn't think twice about having it done - but he checked hishealth and pension benefits in advance, just to be sure.
"I went directly to the top officers of (Regina Appliance) toask them directly. And they assured me they were fine."
That was in late February. In early March, before theoperation, Lindsay got a phone call from a company employee tellinghim - secretly - that the health insurance was actually canceled Feb.28, and that no money had been paid into the plan or his 401(k) sinceDecember.
Angered, Lindsay protested to managers at the company,Atlanta-based Regina Appliance, where he is a sales representative.But for his son, there was no time for delay. He got the surgery andhospital care - they ended up costing more than $200,000.
This month, Lindsay filed a $250,000 lawsuit against Regina andhealth insurer Aetna over the loss of health care and pensionbenefits. Regina has since filed bankruptcy and was bought by Dutchelectronics giant Philips N.V.
Lindsay has this warning for workers:
"As bad as it sounds, the days of company loyalty are dead. Ifyour company says you're covered, check it out," he said.
Lindsay's case is a textbook example of the problem U.S. LaborSecretary Robert Reich is attacking: employers who fail to depositworkers' funds into their company's 401(k) plans. Regina was one ofthe targeted companies in the current crackdown.
"It is illegal for an employer to delay transfer of funds froman employee to their 401(k) plan. It is your money, not their freechecking account," Reich said in an interview.
Most 401(k) plans - and corporate benefits - are safe, expertssay. Most employers collect the money as they should, and put thefunds where their workers want them.
But last month, the Labor Department announced it has more than300 open cases where companies and business owners have eitherdelayed transfer of payroll-deducted employee funds into 401(k)plans, or stolen the money altogether.
Since March, the department says it has recovered $3.2 millionfor 2,800 workers through the probe, ranging from $1,000 to hundredsof thousands. Seven area companies have settled with the government.
Since they were created under U.S. tax law in 1978, 401(k) planshave been the nation's fastest growing vehicle for retirementsavings. If your employer sponsors a 401(k) plan, you can designatea percentage of your pretax income to be placed in a selection ofinvestment instruments, usually mutual funds. Your investmentreduces your taxable income, and the money is allowed to growtax-deferred until its withdrawal is authorized when you reach age 591/2 or leave your job.
By the end of 1992, 401(k) assets grew to $553 billion, withsome 20.5 million participants, the Labor Department said. In 1984,there were just 7 million participants, with $92 billion in assets.
While traditional defined benefit plans are insured by thefederal government through the Pension Benefit Guarantee Board, thereis no similar insurance for 401(k) plans, named after the section oftax code that created them.
However, 401(k) payments are often the first to lapse atcompanies that get into financial trouble, said one employer thatmade restitution in the probe.
Clay Spanjer, one of the owners of former Chicago-based signcompany Spanjer Brothers, incurred the Labor Department's wrath afterthe company filed for Chapter 11 bankruptcy protection last year.The operation has been bought by a new company where Spanjer works,and the Labor Department says that its $53,518 401(k) debt has beenmade whole.
"We never intended to create a deception among our employees,but we had filed Chapter 11, and even though that's one of the thingsyou never want to get behind on, we did," Spanjer said. "Now that wehave new owners, we're OK."
But 401(k) shareholders, unlike employees in traditional pensionplans, don't necessarily have a guarantee of getting all their moneyback if a company goes belly up. The lack of federal insurance on401(k) plans is the reason.
Reich and pension experts emphasize that the cases the LaborDepartment found represent only a tiny fraction of the whole.Indeed, the big offenders aren't major corporations. The most commonviolator is a small employer - a company with 500 employees or less.And the common denominator is cash-flow trouble.
"The pattern seems to be that the employer is late in payingbills, and views the 401(k) as a pool of money from which he or shecan borrow," Reich said. "And sometimes, that person never getsaround to paying back."
Under pension law, employers must turn over employee funds tothe designated plan accounts as soon as the employee makes thosefunds available for transfer. Last week, the Labor Departmentannounced a tightening of the compliance period for that requirement,from 90 days to 30 days.
Reich said some companies were treating the 90-day maximum as a"grace period, which it is not."
The Profit Sharing; 401(k) Council of America - a pensionindustry group - argues that the tighter deposit requirement imposesa hardship on law-abiding companies.
Said David L. Wray, the group's president: "The overwhelmingnumber of participants are really prospering in the 401(k) planenvironment. The abusive situations have affected only a tinyfraction of those involved, and most of the abusers have beencompanies in financial trouble."
Benefits consultants also argue that the new rules may be tootough.
"More than 99 percent of plans are well-managed according to therules. Fortunately (the Labor Department investigation) doesn'tapply to the vast majority of plan participants," said Brian Irion, acommunication consultant with Deerfield-based Hewitt Associates. "Ithink information's great, but the big concern is that this may besetting up many companies for attack when they're doing a good job."
Reich said he thinks most companies are doing a good job, but headds that all parties should be better informed on what theircompanies are doing with their money.
Reich suggests these steps if you feel your pension funds arebeing tampered with: Check your pay stub: If you've received your recent 401(k)statement, check your pay stub to see that the contributions made toyour plan match the total on your 401(k) statement. If the figuresdon't match, ask your employer's human resources office about theproblem. It could be a simple mistake - but one worth watching. If you can't get an answer from your company: Call the local officeof the U.S. Labor Department, Reich said. You will have to prepare afile of pertinent records on your case before you can get thegovernment involved, but if you do, a simple phone call from adepartment employee to the company can sometimes straighten out theproblem.
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