As Congress contemplates private acccounts for Social Security, you should know that your 401(k) plan faces an increasing threat from theft. The Wall St. Journal reported that for the fiscal year ending September 30, the U. S. Department of Labor found 1,269 instances of missing 401(k) money. This is a 37-fold increase from 34 violations found in 1995.
In some cases, your employer may fail to send the money it deducts from your paycheck to an investment provider. Lodging and Gaming Systems, Inc. of Reno, Nevada failed to deposit $237,295 in 401(k) contributions. The company is reported to have used the money for "operating expenses." The company now is in Chapter 11 bankruptcy.
Your money isn't necessarily safe even once it is forwarded to an investment provider. Consider the cae of Susana P. Longo, the compliance officer for the Atlanta-based investment advisory firm, Applied Financial Group, who was indicted in January on federal charges of stealing $5.4 million in retirement savings. Ms. Longo acknowledges using the funds to buy two beach houses, a diamond ring, a 1,600-bottle wine collection, and a Porsche 911.
The retirees of the companies whose 401(k) plans were looted are not getting any money. Their accounts have been frozen while things are sorted out. So far, the court-appointed receiver has raised about $2.1 million by selling off assets Ms. Longo acquired with other people's money. Ms. Longo has entered a not guilty plea in the 295 count federal indictment.
Karen Ferguson, policy director for the Pension Rights Center says, "The more billions of individual little accounts, the greater chance you have of [fraud]."