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Originally published Sunday, April 19, 2009 at 12:00 AM

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Signs there's something wrong with your 401(k)

Protecting your retirement nest egg is a top priority of the Department of Labor, or DOL. The agency issued warning signs to help employees discover whether their 401(k) contributions are being misused. These are the department's top warning signs that something is amiss.

Bankrate.com

Warning signs that your plan is getting filched

401(k) account statement is always late or arrives at irregular intervals.

Account balance doesn't appear to be accurate.

Employer fails to transmit your contribution to the plan in a timely manner.

A large drop in account balance not explained by normal market conditions.

401(k) statement doesn't reflect contributions withheld from your paycheck.

Investments on your statement aren't what you authorized.

Former employees aren't getting benefits paid correctly or on time.

Unusual transactions, such as a loan to the employer or plan trustee.

Frequent changes in investment managers or other plan consultants.

Your employer is experiencing severe financial difficulty.

Source: U.S. Department of Labor

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More Americans than ever rely on 401(k) plans to save for retirement. And to say the plans are increasingly popular is an understatement. Assets in 401(k) plans surpassed $3 trillion at the end of 2007, according to the Investment Company Institute, a national association of U.S. investment companies.

Yet when we get our 401(k) statements, most of us glance at the balance and toss the statement aside. We take for granted that our 401(k) contribution ends up where it's supposed to — in our retirement plan. It's a long-term investment account, so why worry about it now, right?

Most of the time the process is problem-free, but sometimes 401(k) accounts are misused or mismanaged.

In 2007, the U.S. Department of Labor's Employee Benefits Security Administration, or EBSA, the agency charged with enforcing 401(k) regulations, investigated more than 1,326 cases of 401(k) mismanagement, resulting in more than $51 million in restitution and penalties.

Experts say smoking out 401(k) shenanigans can take a certain amount of financial wherewithal. So unless you're certain something fishy is going on, you should continue making contributions into your retirement plan. But do scrutinize your statements to make sure your account is getting credited with your contributions.

Protecting your retirement nest egg is a top priority of the Department of Labor, or DOL. The agency issued warning signs to help employees discover whether their 401(k) contributions are being misused. These are the department's top warning signs that something is amiss:

Where's my statement?

Individual benefit statements vary in how often they are mailed to plan participants. Because you don't get them that often, it's important to check with your plan administrator, make sure your address is up to date and ask how often statements are mailed.

"Under the Pension Protection Act of 2006, people who are in self-directed, defined-contribution plans are required to get quarterly statements," says Jeanne Medeiros, attorney and legal coordinator with the New England Pension Assistance Project in Boston. "If you are in a nonself-directed plan, it's annual."

If you're in doubt as to what type of plan you're in, contact your plan administrator.

Tip: Check your Summary Plan Description, or SPD. This document spells out the rules of your 401(k) plan in simplified language. You should have received an SPD within 90 days of joining your company's retirement plan. You have the right to receive one, free of charge, by writing to your plan administrator.

The numbers

don't add up

Check your paystubs, add up your contributions to date and make sure your 401(k) account is off by no more than one or two pay periods. With many 401(k) plans today, especially the larger ones, you can access your account via the Internet and monitor the date of your last contribution, including the amount. If you're still not satisfied with how the numbers add up, alert someone in your company.

"Start with your employer's representative," says Bill Howell, certified financial planner, certified public accountant and head of Howell Financial Advisors in Noblesville, Ind. "They [plan participants] should first be proactive with the employer; then the plan provider (such as Fidelity or Vanguard), and if you're still not satisfied, you should file a complaint with the Department of Labor."

Tip: The Department of Labor, or DOL, says workers with questions or concerns about their 401(k) plans should call 866-444-3272. The agency has employees available to answer questions and follow up on complaints.

My contribution

is always late

"If you're paid twice a month and you're not seeing a fractional amount go into your account at least monthly, that's obviously a sign there may be mismanagement issues," says John Hotz, attorney and deputy director of the Pension Rights Center in Washington, D.C.

Employers of all sizes generally have no more than 15 business days after the end of the month in which they withhold your 401(k) contribution to deposit it into your plan's account. However, the DOL is proposing a new safe-harbor rule. It would require plans with fewer than 100 participants to deposit employee 401(k) contributions within seven business days of receipt or withholding. While for now, the proposed rule applies only to small plans, the Department of Labor is studying the merits of applying it to larger plans.

"When employee and employer contributions don't get into the plan in a timely fashion, they become issues that are right in the bull's eye of the kind of enforcement work that the DOL is doing," Hotz says.

Tip: The Employee Benefits Security Administration advises consumers who have information that plan assets are being mismanaged or misused to contact the local EBSA office.

Where did all

my money go?

Market forces determine the performance of your 401(k) plan, so it's normal to see your balance rise and fall over time depending on fund performance and economic conditions. Still, it's important that you check your benefit statements to make sure the amounts make sense from one period to another.

"Issues of market performance are more subtle, technical and difficult for the average consumer to point to and see that something is wrong," Hotz says. It's possible that if your company is on shaky financial ground, your 401(k) contribution may have been diverted for loans or other reasons.

"If you've got a plan prospectus and you see the performance for the money you have in one of these accounts varies from the publicly available information on plan performance, then maybe you've got an issue," Hotz adds.

Tip: You might wish to request your plan's Form 5500 or Form 5500-C/R (for plans with fewer than 100 participants). Both contain information on the plan's overall finances. The Employee Retirement Income Security Act, or ERISA, and IRS rules mandate that your plan complete Form 5500 annually. The DOL says you have a right to these documents. The agency describes on its Web site how to mine the document for important information.

My 401(k) statement doesn't jibe

with my contributions

"Begin by talking to the representative at your employer, and if you don't get satisfactory answers there, go immediately to the plan provider," says CFP Ken Robinson, a Cleveland-based attorney, author and head of Practical Financial Planning.

He adds that it pays to have a knowledgeable expert in your corner if your 401(k) becomes problematic or you feel overwhelmed by all the rules and regulations.

Tip: Robinson recommends getting your financial planner, if you have one, to step in and make inquiries for you. "Sometimes contributions don't end up where they are supposed to; they're taken out of a paycheck; they're supposed to get to a plan and it's just an honest oversight that they're late," he says. "Having a third party may help to separate out those types of issues."

I didn't sign up

for these investments

One investor, James LaRue, lost $150,000 in his 401(k) plan because his former employer neglected to move his assets to more conservative investments despite repeated requests. LaRue took his case all the way to the Supreme Court, which unanimously found in his favor. The landmark decision marked the first time the court addressed whether workers could sue over individual losses in their 401(k) plans under federal rules.

No one expects the courts to be flooded with disgruntled investors. Sometimes simple clerical mistakes can happen when you first sign up for your company's 401(k) plan.

If you have access to the Internet and your 401(k) plan allows you to manage your account online, check to see if the funds you originally selected are still available.

If they are, you can make the corrections yourself. You can change investment elections, change the percentage of your contribution or stop contributing outright with the click of a mouse.

Tip: If your plan allows participants to direct their own investments, find out from your plan provider what investments are available and request a prospectus for the ones that suit your goals.

Some plan providers allow you to request or access this information on the Internet.

You may even be able to view your plan's SPD, which may describe your available investment options. It should be available free of charge.

However, if you find yourself in LaRue's situation, contact your plan provider first (Vanguard, Fidelity, etc.) and see if it can move assets over the phone or Internet. If it can't without employer approval and the employer does not comply, then contact the nearest EBSA field office.

Former employees aren't getting benefits on time

If former employees aren't getting benefits on time or in the correct amount, chances are that you'll have a problem sometime down the road, too.

You can check if your plan lost money during the year. If it lost money due to criminal activity, it will show up on item 29b on Page 5 of Form 5500.

You can also check if a fidelity bond covers the plan's fiduciary. A fidelity bond is a bond that protects plan participants in the event a fiduciary or other responsible person mismanages or misuses plan assets.

A fiduciary is someone who handles your money and is supposed to act solely in your best interests. You can also find out how much the bonding company has to pay plan participants if money is misappropriated.

Tip: If you suspect planwide malfeasance or misappropriation of benefits, you should contact the Department of Labor. If you have an individual benefit concern, you should report it to the DOL, but you may also want to consult an attorney well-versed in pension law.

Employer or trustee

of plan got a loan

from the plan

"One of my clients found out that plan funds were being held for two months before they were transferred," says CFP Robert Timineri, head of Sausalito, Calif.-based Total Return Advisory and Incentive Asset Management. "The company was giving itself short-term loans with client money."

Timineri says the plan provider noticed a usual pattern was broken and began an inquiry.

Tip: Form 5500 can alert you to unusual transactions, such as a loan to your employer, a corporate officer or a plan trustee. Check item 27b and 27c on Page 4 of Form 5500 to see if your plan is having trouble collecting loans owed to it.

A separate listing of any defaulted loans or leases should be attached to Form 5500 if this is the case. Again, if you suspect the plan is being misused by plan fiduciaries, contact the nearest EBSA field office.

They keep switching

the fund firm

Frequent changes in investment managers or plan consultants could indicate that your 401(k) plan is in trouble.

Tip: You can find out if key plan personnel quit or were fired during the year by looking at items 25c, 25d and 25e on Page 4 of Form 5500. You'll also know if there were any questions about their professional judgment.

Your company is in dire financial straits

Employers that are having trouble paying bills may be tempted to use retirement-plan funds to keep vendors and creditors at bay. The problem is more common at smaller companies without a designated employee to manage the company plan, according to Hotz.

"If the company can't meet payroll or get their vendors paid, there's not always enough money at the end of the month when it comes time to drop a payment into the 401(k) plan," he says. "They (401(k) plans) can have a tendency to be the last on the list to be paid, and that can be troublesome."

You should always pay attention to any information about your company's financial health. Have there been layoffs recently? Did your employer have to borrow money to keep afloat? These could be warning signs that your company is in trouble.

Tip: If your employer declares bankruptcy, your pension assets should generally be safe because ERISA (massive regulations that govern 401(k) plans) requires pension benefits to be adequately funded and pension monies kept separate from an employer's business assets, according to the Department of Labor's EBSA.

You'll want to contact your plan administrator to find out how the plan will operate during and after your company's bankruptcy. If you can't get information from your plan administrator, call EBSA for assistance.

Copyright © 2009 The Seattle Times Company

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