Ah, the lazy, hazy days of the retirement "golden years." To borrow a Swahili phrase made famous in Disney's The Lion King, is retirement "hakuna matata" time (i.e., "there's no worries")? Unfortunately not.
Retirement planning is already complex and difficult enough, especially with shrinking portfolios and the potential for onerous tax mistakes. Now, 401(k) investors face a new challenger – fraud and theft. As recently reported in Market Watch, the Labor Department has launched 191 investigations in just the past three months, securing 20 indictments – a whopping 43 percent more than the department has secured annually, on average, since 1995. Observers say the indictments point to larger issues in the 401(k) marketplace, from lack of oversight and an understaffed enforcement agency to the larger risks that have shifted over time to individual participants. As lean times and a harsh economy cut into funds everywhere, less scrupulous managers face a growing temptation to illegal activity, especially in small companies where there are fewer people in a position to take notice. The foxes are literally in the proverbial hen house!
To be fair, 401(k) plan theft and fraud are not common worries. The Labor Department’s investigations touch fewer than one out of every 2,600 of the 401(K) plans nationwide, and an even smaller fraction of the 60 million participants. Though the dollar amounts are not large in the grand scheme of things, the outcomes could be “fairly cataclysmic” for an individual worker and their family, says Phyllis Borzi, the assistant secretary of the Employee Benefits Security Administration.
Vigilance is the watchword. There are steps you can take to watch over your nest egg. The Labor Department offers a list of 10 warning signs of which you should be aware that could indicate a potential problem with your plan administrator:
- Your 401(k) or individual account statement is consistently late or comes at irregular intervals.
- Your account balance does not appear to be accurate.
- Your employer failed to transmit your contribution to the plan on a timely basis.
- You notice a significant drop in account balance that cannot be explained by normal market ups and downs.
- Your 401(k) or individual account statement shows that your contribution from your paycheck was not made.
- Your investments listed on your statement are not what you authorized.
- Former employees are having trouble getting their benefits paid on time or in the correct amounts.
- Unusual transactions, such as a loan to the employer, a corporate officer or one of the plan trustees.
- Frequent and unexplained changes in investment managers or consultants.
- Your employer has recently experienced "severe financial difficulty.”
Look, you worked to hard for your retirement to have it stolen. It is well worth the effort to make sure your nest egg is secure.