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| The Basics | 10 warning signs that your 401(k) is in trouble
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You can't just sock your money away and forget about it. Getting the most from your 401(k) -- and sometimes getting anything at all -- requires careful tracking of your investments. Here's how to tell if something's amiss.
By Ginger Applegarth
Not all company 401(k) plans are created equal. While most employers and the companies they hire to manage the retirement accounts usually handle everything seamlessly, you can't take it for granted that everything is fine.
You can't just invest whatever percentage you choose of your paycheck each pay period and forget about it. This is your money and your retirement, after all.
If you participate in a retirement plan at work, you know that you have to pay attention to the details. If you're allowed to make your own contributions to the plan, you have to figure out how much you're allowed to contribute, and then how much you can afford to contribute. If the investing decisions are left to you, then you have to figure out which investment options are best for you. And even if it's a plan that your employer contributes to but you don't, you need to make sure that the following four rules of pension plans are being followed.- The money must be invested in your best interest.
- Expenses must be reasonable.
- Investments must be diversified.
- The money must be invested wisely and carefully.
Unfortunately, some plan participants have found out the hard way that these rules aren't always followed. Employees of one Connecticut company, for example, found that the administrator for their 401(k) plan had diverted their retirement-plan money for his own benefit; he is now in jail, but most of the money is gone.| What to do if you think something isn't quite right in your retirement plan | | 1. Find out who manages your retirement plan (known as the administrator; this is in your documents). 2. Ask your plan administrator for documents such as the Summary Plan Description, Summary of Material Modifications and Individual Benefit Statements. These will provide a clear snapshot of how the plan is doing. 3. Contact the appropriate federal agency and ask officials to investigate. Call your local office of the U.S. Department of Labor's Pension and Welfare Benefits Administration if you think the trustees or administrators are not carrying out their duties. If it looks as if they have taken loans from the plan, call the Internal Revenue Service. (You might even get up to 10% of any penalty taxes the IRS collects as an Informants' Reward. To qualify, you have to file a written complaint.) If you think that your retirement plan has been victimized by embezzlement, extortion or kickbacks, contact the FBI. SOURCE: U.S. Department of Labor
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Here are 10 warning signs that things may be amiss in your retirement plan, according to the U.S. Department of Labor:
1. Your statement is consistently late or comes at irregular intervals. If your employer is contributing to the plan but you aren't, you should be getting an Individual Benefit Statement at least once a year (you may have to request this in writing). If you are making contributions, you usually get quarterly statements. Example: you were getting quarterly statements and now they are only showing up once a year (or not at all), it's time to investigate and find out why.
2. The account balance doesn't look accurate. Pull out your last few statements and compare the balances. Example: it doesn't look as if your employer's contribution ever got credited to you.
3. Your employer didn't send your contribution to the plan in a timely manner. There are strict rules requiring your employer to send your contribution to your plan in order to prevent employers from using their employees' retirement plan contributions as "float." Example: you are having money taken out every month, but January's contribution doesn't show up until July.
4. Your balance has dropped significantly and can't be explained by market ups and downs. By keeping track of the mutual funds or stocks in which your retirement plan money is invested, you know whether those investments gained or lost in value. Example: you invested all your plan money in a Standard & Poor's 500 Index fund, and your plan's value declined in a year when the S&P went up. Check out your options.
5. Your statement shows that the contribution from your paycheck was never made. When you get your statement, make sure every contribution is listed. Example: money is being withheld from your paycheck every month, but somehow April and November's contribution never showed up in your account.
6. Investments listed on your statement aren't the ones you authorized. This could just be miscommunication on the part of your employer about what's in the plan, or perhaps your plan administrator is investing aggressively to try and make up for high expenses or unauthorized investment losses. Example: you signed a form stating you want your money to be split between a large-company index fund and a bond fund, yet your statement says that all your money is in a risky small-company growth fund (or worse yet, your company's stock).
7. Former employees are having trouble getting their benefits paid on time or in the correct amounts. Hopefully, if this happens you will hear about it, but this is a sure sign that something is amiss in the retirement plan. Example: your former colleague opened a rollover IRA and authorized a transfer of funds when he left the company six months ago, and his IRA custodian still has not received his money from your company retirement plan.
8. There are unusual transactions listed, such as a loan to your employer, a corporate officer or one of the plan trustees. You won't see this in your individual statement, but you will see it in the Summary Annual Report, which you should get automatically every year from your plan administrator. Example: The president of the company received a loan of more than $1 million at below-market rates in a year that the company is experiencing financial difficulties. If the president is a new hire, however, the loan may be part of the overall compensation package and you probably shouldn't view this as unusual.
9. There are frequent and unexplained changes in investment managers or consultants. If the managers, administrators or consultants change frequently, it could be that your employer has something to hide and as soon as one of the current advisers starts to catch on, your employer switches to another. Example: your plan administrator has been a different firm every year for the last three years.
10. Your employer has experienced severe financial difficulty. If your employer is having cash-flow problems, those retirement plan contributions being deducted from workers' paychecks are a very tempting source of operating funds. It also is tempting for your employer not to make its required contributions. Example: your company has had three rounds of layoffs in the last six months, and it lost its biggest customer two weeks ago.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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