With the new pension law pushing workers into 401(k) plans, reader Beverly Swanson of Pikesville wonders how secure that money is from an employer's grasp.
Is there something in the 900-plus-page law, she asks, that allows an employers to tap those assets if the company is sold or runs into financial trouble?
Swanson e-mails: "In other words, when you put money in a 401(k) are you going to risk losing your money to your employer? This is of special concern because some employers are automatically taking new employees' money and putting it in 401(k)s."
Rest assured, there's nothing in the new law that would allow financially desperate employers to raid a 401(k). Workers' money typically is held in trust by an outside institution or group, experts say.
Still, problems can arise. And workers need to keep an eye on their accounts and report any suspicions of fraud to the Department of Labor at 866-444-3272.
In rare cases, a payroll clerk or other employee might divert workers' contributions to his own pockets, says Rick Meigs, president of 401(k)helpcenter.com. A more likely occurrence is a financially troubled small company not promptly forwarding workers' contributions to the plan, he says.
Last month, for instance, the Labor Department announced that it was suing three former officials of a defunct California telecommunications company for allegedly failing to properly forward workers' money to the 401(k) plan.
Once an employer deducts workers' money from pay, it is supposed to forward the cash to the plan as soon as it can. The employer has 45 days at most to do so, says John Hotz, deputy director of the Pension Rights Center. Employer matches don't have to be forwarded to the plan for months, he says.
According to the Labor Department, the warning signs workers should look for include:
Consistently late statements, inaccurate balances or a big drop in balance that can't be blamed on the market.
Former workers not getting their benefits on time or receiving the wrong amount.
Hotz says there is another way that employers can put workers' accounts at risk - matching employee contributions with company stock. Most plans of publicly traded companies do this, which can cause workers' accounts to be overloaded with employer stock, Hotz says.
And if the company ends up in the tank, so do workers' accounts. Think Enron.
Hotz says the new pension law will offer some protection by allowing workers to sell employer stock after three years.
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