By CHRIS TOWNSEND
UE Political Action Director
If you are one of the growing number of UE members who participate
in the tax deferred savings program known as a 401(k) plan, you probably give your
statement a glance before filing it away with other information regarding your account.
Once you have scanned the numbers, made a mental note that everything seems in order, the
plan goes out of mind. The only other times you might think about your 401(k) is when you
begin to close in on retirement, want to borrow against it, decide to change your
investment option, or the subject comes up at a union meeting.
PHENOMENAL GROWTH
Unfortunately, many of us don’t pay nearly enough attention to
what’s going on with our money.
Since the program came into existence in 1978 under Section 401(k) of the
tax code, more than one trillion dollars in assets have been accumulated by the millions
of working people and bosses eligible to participate in these programs! And while the vast
majority of employers have administered their 401(k) plans in an honest and efficient
manner, a disturbing number of recent cases illustrates the need for increased monitoring
of our hard-earned money entrusted to these plans. Since most 401(k) investments are not
insured by the government — unlike defined benefit pension plan assets, failure to
monitor the assets invested in these plans could be disastrous.
STICKY-FINGERED
BOSSES
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WARNING SIGNS THAT YOUR 401(k) PLAN COULD BE IN TROUBLE
• Your employer is experiencing
financial or cash flow problems, or is beset by infighting among the management.
• Your account balance is incorrect, for
no apparent reason.
• Your 401(k) statement arrives
sporadically or consistently late, or fails to come at all.
• Your employer is holding your
contribution to your 401(k) for more than 90 days.
• Your account balance has suddenly and
significantly dropped for no apparent reason.
• Your account statement fails to
reflect contributions by you or your employer.
• The investments on your statement are
not what you have selected.
• Former employees are having
difficulties obtaining pay-outs from their account.
• The plan is making loans to your
employer, one of your bosses, one of the plan trustees, or is engaging in other
questionable behavior.
• Your plan trustees are frequently
changing plan managers or consultants.
• You are having difficulty getting
answers to your specific questions.
• Your employer refuses to disclose and
waive any fees that you are being charged for the administration of the plan.
Source: U.S. Department of Labor, Pension and Welfare Benefits
Administration
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Bring your concerns to the attention of your UE local leadership for
further investigation.
If your employer is unable or unwilling to answer your local
union’s questions in a timely manner, contact your UE field organizer or
international representative to take further steps.
Call the Pension and Welfare Benefits Administration hot-line
(800)998-7542 to obtain publications on pension and retirement issues, or to report
suspected wrongdoing.
Source: U.S. Department of Labor, Pension and Welfare Benefits
Administration.
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The problem of mismanagement, and even wholesale looting
and stealing from 401(k) plans, reached such an extent by the middle of 1997 that the
United States Labor Dept. was forced to announce a joint campaign with the Justice Dept.
to crack down on this burgeoning white-collar crime wave. Prosecutions of dishonest bosses
in the first few months of 1997 recovered more than $24 million in 401(k) assets that had
been stolen from more than 40,000 working people. And so far in 1998, prosecutions of
sticky-fingered bosses continue to increase.
Take, for example, the case of the owner of a Philadelphia company who
embezzled more than $43,000 of his employees’ 401(k) contributions by simply not
depositing the workers’ contributions to the plan. Or the Connecticut company that
collected more than $2.4 million in employee contributions, and refused to deposit them in
the workers’ accounts for more than 11 months. When the Labor Dept. threatened the
company with prosecution on behalf of the 1,045 plan participants, the money was finally
deposited.
A boss in San Francisco stole $450,000 from 108 workers. A Virginia
company looted $146,000 from 72 participants in the 401(k) it sponsored. Consider the
example of the $2.7 million ripped-off from 755 participants by a New York company. In a
recent example, the husband and wife management team of a Maryland company squandered more
than $500,000 of 401(k) assets that rightfully belonged to the more than 150 employee
participants of the company plan.
WHY IS THIS HAPPENING?
While every case of 401(k) fraud and theft has its individual
explanations, the escalating criminal activity should come as no surprise. These plans are
largely unregulated, unmonitored and uninsured by the government. Combine this with the
fact that many participants fail completely to monitor their accounts and the situation is
ripe for abuse. Add to this the fact that both Republicans and Democrats are encouraging
the shift from established, federally insured defined benefit pension plans to uninsured
401(k) plans, we should expect this problem to continue to grow.
President Clinton has not opposed recent IRS changes that allow bosses to
automatically enroll employees in 401(k) schemes, unless they specifically opt-out. This
reverses the current situation where workers must opt-in by their own choosing. Clinton is
promoting this as a way of dramatically increasing the number of people who are
participating in these plans, giving him the ability to claim that Social Security can now
be safely privatized because working people are busy saving money using the 401(k)
vehicle.
Recent developments regarding 401(k) plans include revelations that bosses
may be charging the expenses of administering the plans to the workers who are
participating, and not fully disclosing what these costs amount to. This should remind all
of us to make sure that the employer is first of all revealing the total expenses of the
plan, and that they are absorbing these expenses.
WHAT’S REALLY BEHIND THE 401(k)?
While the 401(k) plan can be a convenient, and sometimes profitable, way
to save money by payroll deduction, we should be reminded that they cannot in any way
substitute for a traditional defined benefit pension plan, fully funded by the employer
and monitored and insured by the U.S. government. If viewed as a supplement to a
traditional pension, the 401(k) is many times a wise choice. But in recent years employers
have virtually refused to negotiate the creation of new defined benefit plans, instead
opting to promote the 401(k) as a replacement.
The big business refusal to expand the pool of working people who are
covered by real pension plans goes hand-in-hand with the efforts of politicians in both
major parties to liquidate our Social Security safety net. They have as their goal the
eradication of real pension plans for working people, including the elimination of Social
Security. Without a genuine retirement plan or Social Security it will then be our
"personal responsibility" to save enough money over our lifetime in order to
finance our retirement years. This was the exact situation facing millions of elderly
working people during the Great Depression, and the primary reason that Social Security
was created in the first place.
An entire generation of working people are put at risk by this trend.
Millions will grow old and face the prospects of retirement without guaranteed pension
income. In a recent report, the U.S. General Accounting Office investigated the increasing
numbers of 401(k) participants who borrow heavily against their accounts, or cash them out
altogether. A disturbing number of 401(k) participants are tapping into the assets of
their accounts, when faced with unemployment, health care catastrophes, divorce costs, or
even drug addiction or compulsive gambling problems. What is clear is that far too many
working people will face their golden years in the poorhouse, with nothing but Social
Security income.
THE TIME IS NOW
The time to think about how to pay your bills after retirement is today.
By working with your local union to improve your negotiated defined benefit pension plan,
or by pushing your employer to create one, you have taken the first step. By then
monitoring with a fine-toothed comb the status of your 401(k) plan, and simultaneously
conducting a vigorous local political action program to defend Social Security, you
enhance your odds of a financially secure retirement.
Contact the UE Research Department and ask for a copy of a three-page
handout entitled "Questions to Ask the Company About a Proposed 401(k) Plan" to
use as a guideline.
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