The U.S. Labor Department estimates there are now nearly 1 million private pension plans with $2 trillion in assets -- that's twice the national debt.
Until recently, however, there were only 260 investigators to make sure plan managers were following federal rules. The department, by its own admission, was able to review just 1 percent of the plans even though it's responsible for their oversight -- a situation that prompted the department's inspector general in 1989 to warn that mismanaged pensions could balloon into the next S&L-like crisis.
Now a new computer system, which became operational last year, scans all the forms pension funds are required to file. Similar to the IRS' system, it targets those that trigger an alert for further investigation. In addition, the department is presently adding 100 investigators and 33 lawyers to its staff to beef up enforcement.
In fiscal 1990, the department closed 1,463 civil cases and recovered $139.4 million, according to spokeswoman Gloria Della. It also closed 36 criminal cases, and another 102 remain open.
Most of the cases, said Della, were either violations of requirements that investments be made in the interest of fund members -- or were prohibited transactions.
Karen Ferguson, director fo the non-profit Pension Rights Center, said that, while most pension plans are well managed, the department weekly turns up cases of employers looting plans by illegally borrowing assets, paying excessive fees to administrators or outright stealing.
"It's absolutely astonishing the ways people are dipping into these plans," she said.
What can you do to help make sure your plan isn't being looted?
First, pension plan members need to understand four basic rules that govern fund managers:
* They must invest the money in the best interests of the people covered by the plan, not of the employer or union or those who provide services to the plan or themselves.
* Expenses have to be reasonable; managers can't overspend on fancy offices, trips etc.; also, full-time company or union employees can't be paid for managing the pension fund.
* Investments have to be diversified; the managers can't put all a fund's eggs into one basket.
* Investments must be prudent and careful; they're not supposed to be outlandishly risky, but on the other hand, the managers can't let huge amounts sit in a 5 percent savings account when better earnings are available elsewhere at little risk.
With those in mind, fund members should look at the financial statements fund managers have to file.
"The stuff is there for the average Joe to look at," said Robert Preston, a Connecticut pension actuary, consultant and newsletter publisher. "It's a question of how much initiative they take."
L Here are steps you can take to ride shotgun on your pension:
* Read the summary annual report.
Plans covering 100 or more people have to give members a summary annual report, a short document that summarizes information from a detailed financial form filed with the government each year. In smaller groups, members get an SAR every three years; in the other two years, members get the first two pages of a government form the plan has to file.
"It's worth reading," said Ferguson. "It's the only document that alerts you, that says, in effect, this is your plan and this is how your money is invested."
The SAR tells you whether the plan meets federal funding standards, what the plan expenses were, and how much was paid in administrative costs and how much in benefits. It tells you the value of the plan's assets, a breakdown of its income and whether it had any losses. It also instructs you how to get a copy of the full report, known as Form 5500 and what items are included in that report.
The SAR could tip you off if the administrative expenses appear excessive. High costs, said Donald Grubbs, a Silver Spring pension consultant, don't directly affect members of defined benefit plans because the benefits are a promised amount; the company must make up a shortfall. But in a defined contribution plan, such as the increasingly popular 401(k) plans, in which the employer promises only to contribute a certain amount, high expenses can directly affect the rate of return.
If the SAR shows investments are losing money, or that expenses appear high, or that there are loans or leases in default, it's worth taking a look at the full report, said Ferguson.
David Ball, the assistant secretary of labor for pensions and benefits, has proposed reducing reporting requirements by eliminating the SAR and instead requiring annual benefit statements, which would include information on an individual participant's vested and accrued benefits.
Ferguson criticized the proposal as an attempt by companies to restrict information about plans' financial status. SARs impose no burden, she said, because the information is taken from more detailed reports plans are required to file with the government.