"Like millions of Americans, a large part of your savings may be in a pension fund sponsored by a private corporation or union...You have to be your own watchdog."

Although I echo its sentiments, I am not the author of this sobering statement. The federal government is. To be precise, it is in literature produced by the "Pension and Welfare Benefits Administration," a division of the U.S. Department of Labor. And in light of Labor Day, Enron and shameful revelations about what's happened to assets in other companies' retirement plans, it seems an appropriate topic.

While most of the more than 300,000 401(k) plans in this country are run honestly, company employees should be their own first line of defense against plan mismanagement. Starting in 1995, the The Department of Labor (DOL) began noticing an increase in the number of complaints about 401(k)s. In response, it launched a number of retirement security initiatives to police these plans and ensure that they are in compliance with federal law.

For a company in financial trouble, retirement plan assets can be mighty tempting. There are cases where an employer failed to deposit employee 401(k) contributions in a timely manner. Or worse, "borrowed" the money to cover business expenses. Regulations that became effective in February 1997 spell out that employee 401(k) contributions must be deposited into the appropriate accounts no later than 15 business days following the month the contributions were withheld from employee paychecks.

Since the DOL enforcement effort began, there have been more than 7,600 civil nivestigations. In 4,000 cases, the plans were found to be in violation. 109 individuals have faced criminal prosecution as a result. In many cases, investigations were launched following tips from employees.

DOL has created a list of 10 " Warning Signs of 401(k) Fraud" for employees to look out for. These did not just come out in the wake of Enron, but in light of it, they bear repeating. Consider it a warning sign if:

1. Your 401(k) statement is consistently late or comes at irregular intervals.

2. Your 401(k) account balance doesn't appear to be accurate.

3.Your employer held your contribution for more than 31 days.

4. You notice a significant drop in account balance that can't be explained by normal market ups and downs.

5. Your 401(k) statement shows that contributions from your paycheck weren't made.

6. Investments listed on your statement aren't what you authorized.

7. Former employees are having trouble getting their benefits paid on time or in the correct amounts.

8. You become aware of unusual transactions, such as a loan to the employer, a corporate office or one of the plan trustees.

9. The plan has frequent and unexplained changes in investment managers or consultants.

10. Your employer has recent experienced severe financial difficulty.

If you suspect something funny is going on with your retirement plan, call or write the nearest Department of Labor office. There is a toll-free number that both employees and employers can call to get their questions answered by (gasp!) a living, breathing human being.

And this is not just for 401(k) issues. They can help with virtually any employment-related question: job loss, pay, leave, workplace injuries, safety and health issues, pension and health benefits, re-employment rights for those serving in the Reserves, unemployment benefits, overtime, child labor, you name it. The number to call is: 1-866-275-7922.

The same phone number will also allow you to order a copy of the brochure "Protect Your Pension," which contains the 10 Warning Signs above as well as other valuable information. It's also available on the Pension and Welfare Benefits Administration Web site which is under the DOL.

Once on the PWBA's home page, click on "Publications and Reports", and then scroll own until you see the section on "Pension Publications."

You work hard for your money. Make sure it is safe.


Hi Gail.

Can my wife and I roll her 401K fund into another Mutual Fund family as an IRA for the purpose of paying for our three children's college education down the road -- without the 10% penalty?


Deat Pat,

May I be blunt? THIS IS A LOUSY IDEA!

First of all, the rules adopted by your wife's 401(k) plan determine what your wife can do with the money in her account. While many plans allow employees to take out a loan, relatively few permit you to permanently remove your assets in the plan unless you leave the company.

However, some 401(k) plans do allow something called an "in-service" distribution -- but if you are under age 59 1/2, it would only be available to you if you have a financial hardship. And these financial hardship distributions cannot be rolled over to an IRA. This should all be described in the Summary Plan Description. Tell your wife to call Human Resources and request a copy. By law, it's required to be provided to all plan participants. In fact, she might already have a copy.

As you allude to, under Section 72(t) of the tax code, an IRA owner is allowed to withdraw an unlimited amount of money from her IRA at any age to pay for her own, a spouse's or a child's college education. If the money is coming from a traditional IRA, there would be income tax on the amount withdrawn, but no 10% penalty, even if the IRA owner is under age 59 1/2.

But your scheme to pay for your kids' education by substantially reducing your wife's retirement fund is exactly why most 401(k)s do not allow "in-service" distributions: to prevent harebrained ideas like this!

As I have repeatedly said in this column, in the worst case, you might have to take out a loan to cover your childrens' college expenses. However, there are no loans available to pay for your wife's retirement needs!

And with so many attractive ways to save for college, tapping a parents' retirement nest egg is the LAST thing that should be contemplated. Your children are young enough to really benefit from either a 529 college savings plan or a Coverdell Education Savings Account. Moreover, unlike withdrawals from an IRA, these accounts offer the potential for tax-free growth, since qualified withdrawals are free from federal income taxes. (State taxes may vary depending on which state you live in.)

You and your wife would be better off reducing the amounts you're contributing to your company retirement plans and instead, investing that money in one of these accounts every payday. Most 529 plans and Education Savings Accounts allow for automatic investing, with your bank account electonically debited on the date you specify. You don't even have to remember to write a check. And when holidays and birthdays come along, tell Grandma and Grandpa to buy a smaller gift and put the rest of the money they intended to spend into their grandchild's college account.

If you are still determined to raid a retirement account for your kids' college education, you should target your OWN account before tapping your wife's 401(k). Study after study confirms that women are much more likely to face financial jeopardy in retirement than men. They usually begin retirement with smaller nest eggs because they lose years of contributions to both a company retirement plan and Social Security due to years spent out of the "official" workforce for child-rearing.

Because women live longer than men, inflation has more time to erode the purchasing power of what money they do have AND their bodies have more time to develop physically-disabling and costly medical conditions. All of the above factors mean women actually need LARGER nest eggs than men.

I strongly suggest you consider one of the other strategies I've mentioned and keep that retirement money where it belongs: working for a secure future for both of you!


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The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.