Financial Literacy - Securing retirement
retirement
10 ways to spot 401(k) abuse

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 like an old newspaper. 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 or malfeasance, 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 when they come in to make sure your account is getting credited with your contributions.

Warning signs

Protecting your retirement nest egg is a top priority of the Department of Labor, or DOL. The agency issued these warning signs to help employees discover if their 401(k) contributions are being misused.

How to tell if your 401(k) plan is getting filched
  1. 401(k) account statement is always late or arrives at irregular intervals.
  2. Account balance doesn't appear to be accurate.
  3. Employer fails to transmit your contribution to the plan in a timely manner.
  4. A large drop in account balance not explained by normal market conditions.
  5. 401(k) statement doesn't reflect contributions withheld from your paycheck.
  6. Investments on your statement aren't what you authorized.
  7. Former employees aren't getting benefits paid correctly or on time.
  8. Unusual transactions, such as a loan to the employer or plan trustee.
  9. Frequent changes in investment managers or other plan consultants.
  10. Your employer is experiencing severe financial difficulty.
-- Source: U.S. Department of Labor

1. 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."

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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.

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