| Sargent & Lundy Savings Investment Plan |
| 401(k) WARNING SIGNS |
| The following excerpts are from an article in the June
1998 issue of "Plan Sponsor" magazine. The opinions of the author,
Robert Stowe England, may or may not reflect those of the SIP Committee.
If crooks go "where the money is," as the late bank robber Willie Sutton famously said, so does law enforcement, in hopes of discouraging the crooks ahead of time. So it was only logical that the Labor Department's enforcement arm should turn its attention to 401(k) plans, whose exponential growth has sparked concerns that they may be a tempting target for fraud and other criminal activity. "It's not unexpected" that 401(k) plans should attract more enforcement attention from Washington, says David Wray, president of the Profit Sharing/401(k) Council of America. "That's where the participants are. That's were the money is going." Thus far, the enforcers' concerns are focusing on 401(k) sponsors themselves. So, as part of a broader shift into consumer protection, the Pension and Welfare Benefits Administration (PWBA) is devoting more of its public activities and investigatory resources to 401(k)s. "Today, over half of all workers who are covered by a pension plan participate in a 401(k) plan," says Virginia Smith, who became enforcement director in the PWBA last year. "Of the 25.2 million workers covered, 10 million have only a 401(k) plan as their company- sponsored retirement vehicle." Most 401(k)s are well run and do not experience problems, Smith points out. But for the rest, the worst problems show up at small businesses that have fallen on rocky financial times. Often, "the guy who owns the business is the guy who runs the pension plans," Smith says. It's easy for him to deduct the money [contributed by participants] and divert it to other purposes" such as running the business. Some cases may involve only a few hundred dollars, but others involve larger sums. The DoL last year won a $2.7 million judgment from a federal district court in a lawsuit filed in 1995 against Job Shop technical Services of Farmingdale, New York, and Ralph Corace, former trustee of the company's 401(k) plan, which at the time held $4.3 million in assets for 755 participants. A criminal case against Corace is still pending. To beef up consumer protection, the PWBA has added 40 pension benefit advisors in its field offices. These advisors answer letters and take phone calls from plan participants, addressing questions about all types of pension and health plans. But the PWBA is also increasingly targeting third-party providers "to identify plans that show a pattern of delinquencies," says Smith. By the time the participant realizes a problem exists, it may be too late to recover diverted contributions. So far, the DoL's new fee enforcement project "has opened a limited number of investigations to see if plan fiduciaries are fulfilling their fiduciary responsibility with regard to fees," says Smith. "We're working to see that plan sponsors and fiduciaries are aware of fees, what's being charged, and what they're getting in return." The agency wants plan sponsors and participants to be more aware that fees can impact investment return. So far these investigations are focusing only on plans, but may later be expanded to include service providers, Smith says. 10 Signs Participants Should Look For to Protect Their 401(k) Contributions From Misuse: 1. Your 401(k) or individual account statement is consistently late or comes at irregular intervals. 2. Your account balance does not appear to be accurate. 3. Your employer failed to transmit your contribution to the plan in a timely manner. 4. A significant drop in account balance that cannot be explained by normal market ups and downs. 5. Your 401(k) or individual account statement show your payroll contribution was not made. 6. Investments listed on your statement are not what your authorized. 7. Former employees have trouble getting their benefits paid on time or in the correct amount. 8. Unusual transactions crop up, such as a loan to the employer, a corporate officer, or a plan trustee. 9. Frequent and unexplained changes in investment managers or consultants. 10. Your employer has recently experienced severe financial difficulty. Source: Pension and Welfare Benefit Administration |
This page updated on 6/29/98