Financially struggling employers sometimes tempted to raid worker 401(k) contributions

Signs that your employer is misusing your contributions

November 30, 2010|By Eileen Ambrose, The Baltimore Sun

Your 401(k) statement is always late and the balance doesn't reflect all your contributions. Meanwhile, former co-workers complain that they're having trouble getting benefits paid to them.

This may be more than just a case of sloppy bookkeeping. These can be signs that your employer is using workers' contributions to run the company or to cover the owner's personal expenses.

This month the Department of Labor's Employee Benefits Security Administration announced a nationwide crackdown on the misuse of employee contributions to retirement and health care plans. The agency cited 24 cases — none in Maryland — brought against employers and plan officials to recover more than $7 million of workers' money.

The goal is to raise workers' awareness to the issue because they — not regulators — are likely to be the first to notice problems with an employer's plan, says EBSA spokeswoman Gloria Della.

The agency closed 910 civil cases involving violations in 401(k)s last year, and returned $17.9 million to retirement plans. Granted, this represents a tiny percentage of the nearly half-million 401(k) plans in the country.

"But that doesn't reduce the importance to the participants, particularly in a tough economy," says John Hotz, deputy director of the Pension Rights Center. "Participants are already worried about their salary and benefits and whether their retirement is on track."

The EBSA also oversees workers' contributions to health care plans. Sometimes workers don't realize that an employer hasn't been forwarding their payments to the health plan until they visit the doctor and their claim is denied, Della says.

But most of the cases the EBSA deals with are contributions to retirement plans. And these cases often involve small companies, experts say.

"When companies get in trouble and [are] trying to make payroll and pay other bills, it become awfully tempting to keep those employee contributions," says Rick Meigs, president of the 401khelpcenter.com.

If that money sits in an employer's account, it's not protected from creditors in a bankruptcy, Meigs warns. And companies that loot retirement contributions often are candidates for bankruptcy.

Employers are expected to forward workers' contributions to the plan as soon as possible. Employers with 100 or more workers have until the 15th business day of the month after the contribution was received to transfer the money to the plan. Smaller employers must do so within seven business days.

Once the money is transferred to the 401(k) plan, it's generally safe from the employer, Meigs says.

An employer has much more time to time to deposit its matching contribution to the plan, he adds. For example, employer matches this year must be posted in workers' accounts by mid-September 2011.

To protect yourself, review your paystubs to make sure your 401(k) contributions have been taken out of your paycheck. Then compare those figures to your account statement.

If the numbers don't stack up, contact your employer or plan administrator. It could turn out to be an innocent error, Hotz says.

If the problem hasn't been resolved in about 90 days, contact federal regulators, Hotz says. Reach the EBSA at 866-444-3272.

Even when workers suspect their contributions are being misused, they are reluctant to complain to the authorities for fear of losing their jobs. The EBSA's Della says complaints can be made anonymously and the law protects workers from employer retaliation.

Besides, if you don't raise the issue at all, you might not see your retirement money or get your health claims paid.

eileen.ambrose@baltsun.com

10 warning signs that 401(k) contributions are misused

• Statements arrive irregularly or consistently late

•Account balance appears inaccurate

•Contributions aren't transmitted to the plan on a timely basis

•A steep drop in the account balance that's not due to normal market swings

•Statement shows contributions were not made

•Investments listed on the statement are not what you authorized

•Former employees have trouble getting benefits paid on time or in the correct amount

•Unusual transactions, such as a loan to the employer

•Frequent and unexplained changes in investment managers or consultants

•Your employer has recently experienced severe financial difficulty

Source: Department of Labor

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