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Protect your 401(k) from thieves

By Barbara Whelehan · Bankrate.com
Friday, November 19, 2010
Posted: 11 am ET

We must be vigilant about our retirement accounts, protecting them from nefarious forces that threaten to inflict damage. Whether these forces involve market turbulence, fraudulent advisers or unfortunate circumstances such as job loss, it behooves us to keep careful watch over our assets.

The U.S. Department of Labor reminds us this week that we shouldn't let our guard down with our 401(k) plans, even while employed. On Tuesday, the DOL's Employee Benefits Security Administration, or EBSA, announced the launch of its Contributory Plans Criminal Project -- "the agency's first criminal national enforcement project targeting persons who commit fraud and abuse against (plan) participants," according to a news release.

As if we don't have enough retirement planning concerns! But hey -- it's good to know there's a government agency in place to protect people like you and me who contribute money each paycheck to an employee benefit plan.

But we can't be complacent. We have an obligation to make sure all our contributions are accounted for.

"Workers are often the first line of defense in identifying problems with their benefit programs early," said Phyllis C. Borzi, assistant secretary for EBSA, in a press release. "Therefore, we want to equip them with information to help the department protect and preserve their right to plan benefits."

Fighting 401(k) crime

While the CPCP may be a new development, EBSA actually has been involved in combating 401(k) abuse at a national level since 1995. It works with U.S. attorneys as well as state and local law enforcement to bring criminal cases under the purview of the Employee Retirement Income Security Act, or ERISA, massive legislation enacted in 1974 to protect America's retirement plans. Last year, EBSA garnered 33 criminal indictments -- the most in any fiscal year during the 15-year effort. The perpetrators of crimes often wind up in jail.

Some of the stories are jaw-droppers. Take the case of Barry Stokes, president and CEO of 1Point Solutions, a third-party plan administrator based in Dickson, Tenn. In September 2009, he was sentenced to 12-plus years in prison and ordered to pay restitution in the amount of nearly $20 million after pleading guilty a year earlier to 29 counts of embezzlement from employee benefit plans, among other charges.

Third-party plan administrators are hired to handle the administration of a plan, and fees for this service alone can be pretty high. Stokes collected employee contributions for client plans, but instead of investing the money in the plans like he was supposed to, he bought an extensive Japanese art collection, among other things.

Employers minding other people's business

EBSA also handles civil cases filed in federal district courts across the country, and on Tuesday, the agency announced its filing of lawsuits against two dozen employers who in recent years collectively diverted more than $7 million of workers' retirement contributions, using them to prop up their own businesses or for other purposes. In fiscal year 2009, some 1,042 civil investigations were concluded, with 910 found to have violations.

Some of the lawsuits involve relatively small amounts of money. For example, EBSA filed suit against a Lexington, S.C., steel fabricator for failing to forward a total of $7,554 that had been withheld from employees' paychecks between December 2006 and May 2009.

The company apparently has trouble getting a loan. Why would it risk getting into trouble over a relatively paltry sum pilfered over a period of 2½ years? It's a head-scratcher. But likely the firm's principals thought they could get away with comingling their workers' money with the company's general assets.

Moral of the story: Check your quarterly statements when they come in and make sure you're not getting ripped off, whether by your employer or a third party. Read the Bankrate story "10 ways to spot 401(k) abuse" to insure your plan from thieves.

Follow me on Twitter: BWhelehan

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Do you check your plan statements? Have you found any irregularities?

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2 Comments
Barbara Whelehan
January 18, 2011 at 8:37 am

Hi, Craig. Rest easy. The government is not going to get a hold of our IRAs and 401(k)s. But whether Congress adequately addresses the deficit problem and with it Social Security is a huge source of concern, in my opinion.

Craig S.
January 18, 2011 at 7:18 am

The only thieves that I worry about are the ones that we presently have in the White House that would try and seize retirement accounts and nationalize the system.