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401(k) Plans
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Safe and convenient? Not always. 401(k) plans can be subject to mismanagement — and outright theft by unscrupulous bosses. The best pension plan? Don't let the boss con you — a defined pension plan is still the best way to go. A replacement for Social Security? That's what some politicians have in mind.

Here's a look at some 401(k) plan issues and pitfalls ... along with some warning signs that your 401(k) plan could be in trouble and what to do if you suspect problems.

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.


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.



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


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.

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.


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.


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 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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