How do I know my 401(k) assets are safe from my company?

Here are some of the questions I have received over the years from employees concerned about their 401(k) assets:

Are my 401(k) assets safe from my company? Can my company withdraw monies from my account to pay company debts? Can they use my 401(k) account as collateral for a loan? What if my company goes bankrupt? Can my assets be seized along with the company’s? How can I be sure my company is forwarding my money to the mutual fund company on a timely basis or at all?

I usually answer by explaining that a 401(k) account is a separate entity from the company. This account is heavily regulated and can not be accessed by the company. I also tell them our 401(k) account is audited each year and as a part of this audit we must prove employee assets were transferred within Department of Labor guidelines. Currently our payroll company transfers employee deductions directly to our plan’s 3rd party administer shortly after our payroll has been run.

There was an informative article in today’s Milwaukee Journal that answers most of these questions: How safe is your 401(k)? by 401(k) adviser Michael J. Francis.

Francis explains Congress passed the Employee Retirement Income Security Act, known as ERISA, to safeguard qualified retirement plan assets in 1974. This act was a result of the demise of the Studebaker Motor Co. and the questionable business dealings of Jimmy Hoffa Sr. If you don’t know the story I highly recommend you read the article.

Francis informs us of ERISA's protections:

ERISA requires when your 401(k) contribution is withdrawn from your paycheck that the funds be deposited in a trust account, separate from your employer's assets and separate from any financial institution's assets.

This requirement protects you in the event your employer, or the financial institution that holds your retirement assets, runs into financial trouble.

This rule also protects 401(k) savings if you find yourself in the unfortunate circumstance of filing personal bankruptcy. This risk has always been an issue for business owners and professionals subject to malpractice lawsuits, but more people are benefiting from this protection in today's difficult real estate market.

There are two creditors, however, that even ERISA cannot protect you from: the IRS and a former spouse. The law states that if you owe either of these parties money, they can collect by a forced liquidation of your 401(k) account.

For a more informative answer to the basic responsibilities regarding timely 401(k) deposits I turned to the United States Department of Labor:

The deductions from employees’ paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

On the US DOL website I also discovered What you should know about your 401(k) plan a comprehensive publication covering everything you should know about your 401(k) plan. To protect yourself the DOL recommends you should review regularly:

• Make sure you have received the plan’s Summary Plan Description and read it for information on how your plan works. Read other documents you receive from your plan to make sure that you keep up with any plan changes, and check that the information on your benefit statement is accurate.
• If you are in a defined contribution plan, ask for information on the investment choices available in the plan, and find out when and how you can change your plan account investments. 
• If you suspect errors in your plan information, contact your plan administrator or the human resources department.  
• If there have been changes in your personal information, such as marriage, divorce or change of address, contact your plan administrator or the human resources department.
• Keep your plan documents in a safe place in case questions arise in the future.

Here are Ten Warning Signs your 401(k)Contributions are Being Misused:

• 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
• A significant drop in account balance that cannot be explained by normal market ups and downs
• 401(k) or individual account statement shows your contribution from your paycheck was not made
• 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

 If you suspect a problem the DOL recommends:
Starting with your employer and/or plan administrator. If you find an error or have a question, in most cases, you can start by looking for information in your Summary Plan Description. In addition, you can contact your employer and/or the plan administrator and ask them to explain what has happened and/or make a correction.
 
If that does not resolve the problem:
Contact the Department of Labor’s EBSA for questions about ERISA, help in obtaining a benefit, or:

• If you believe your claim to benefits has been unjustly denied or that your benefit was calculated incorrectly;
• If you have information that plan assets are being mismanaged or misused;
• If you think the plan fiduciaries are acting improperly; or
• If you think your employer has been late in depositing your contributions

Alternatives to a “Mental Health Day”

For the first time in years, I have a lull in my work load. With the slow economy I’ve had the luxury of working ahead. I’m between deadlines plus, waiting for my boss to finish his portion of a project before I can proceed. I can’t help but think this would be the perfect time to take a sick day. In the past, I’ve had difficulty calling in sick when I was actually sick. My job revolves around deadlines many of which the company can be fined for if not met. I don’t have anyone who can easily cover for me, so If a tax return is due or commissions need to be calculated I go to work even if sick.

At a previous job, one of my co-workers accused me of making her look bad; I never called in sick while she repeatedly used all of her sick days. She called them “mental health days.” I once asked her what she did on these mental health days. Mostly she read and caught up with her family’s laundry being careful not to leave the house fearing she would be caught. She often reminded me sick days are a benefit you lose if you don’t use.

I don’t want to use a vacation day, but a day of reading and blogging sounds pretty attractive right now compared to sitting at my desk trying to make myself look busy. My friend Bob grew so tired of watching his employees trying to look busy he instituted a furlough policy. Friday would be my day; I will call in sick and have a three day weekend. Then the guilt and my farm girl work ethic came into play:

My boss and my bosses boss know I’m not busy even asking me what I was working on while I was unsuccessfully trying to cut and paste a picture out of a newsletter onto my blog (it was technically lunchtime). They are going to know I’m faking it if I call in. I will then be lumped in with all the other employees with poor attitudes. Then it came to me -- what if I used this slow period to become a better employee. I’ve always been reactive rather than proactive and there are all those interview questions about self-initiative accomplishments I stumble through. Now is the time to update my work skills and our department. I came up with the following list:

Resolve all those little bugs in our systems and procedures:
Debug spreadsheets. Set up query reports for spreadsheets we now prepare manually. Update procedure manuals. Clean and organize my desk. Organize and delete old emails.

Create in-house computer accessible expense report; saving money on forms.

Interview outside payroll companies in search of a cheaper, more service oriented, less cumbersome system than we use now (ADP).

Offer to assist my overworked boss with his portion of the project we are working on. Ask him for additional work.

Talk to my boss’s boss. What would he like me to do to take our department to the next level? What would he like to receive from our department that he is not currently receiving?

Thursday night's episode of "The Office" only confirmed my decision not to call in sick. Kathy Bate’s character Jo says the following to Michael who wants to leave for the day:

"If you can put your name on this day and are proud of the work you’ve done by all means go home."

Do you take “Mental Health Days” when you’re not busy? If not, what do you do to keep busy?

Do you review your Social Security Statement?

What is a Social Security Statement?
The Social Security Statement is a tool designed to help you plan for your financial future. It provides an estimate of the social security benefits you will receive under current law at age 62, your full retirement age, and at age 70. It also lists estimated benefits if you were to become disabled, family survivorship benefits and whether or not you are Medicare eligible. The Statement briefly explains what it takes to become eligible for benefits. Basically, you must work for ten years to earn retirement benefits, and you must work at least five of the last ten years to claim disability benefits. The statement is updated each year to reflect your latest report of earnings. When you get your statement, you should verify that your earnings record is correct for previous years.

When will I receive my Social Security Statement?
By law, social security statements are mailed out annually. You should automatically receive a statement if you have a Social Security Number, are age 25 or older, have any job earnings on record and are not already receiving benefits (including Medicare). You should receive your statement a couple of months before your birthday.

Why is it important to review your statement?
This is important because your earnings record is what the government bases your benefits on (for retirement, disability, Medicare, etc.) Verifying your earnings record is also important because if the numbers are off (especially if they are off dramatically) it could be an indicator of identity theft or fraud.

What if you didn’t receive a statement?
You can request a statement at any time; information on how to do so can be found on the SSA website.

What if you find an error?
If you discover an error in any of the earnings Social Security has listed other that last year, call Social Security's helpline at 800-772-1213, Monday through Friday, from 7 a.m. to 7 p.m. Have your W-2's or tax return for the incorrect years available.

Why am I writing about this?
Because the earnings record on my latest SSA statement was incorrect as were the earnings record of every employee at my company who had received their statement this year. My earnings statement had zero earnings recorded for 2006 while my earnings for 2007 were listed correctly. 2006 was the year my company transferred our payroll processing to an outside provider, ADP. This switch, for year-end tax filing purposes, was a hellish nightmare (ADP issued our company's W-2's eleven times before they got them right). Our accounting department is still working through the tax implications of this fiasco.

Upon noticing this error, I called the SSA hotline on my own behalf and discovered not only my 2006 wages, but the 2006 wages for every employee in our company was being held in suspense. I then asked my boss if his statement had been correct; his birthday was earlier this year. He didn't know as he had shoved his unopened statement into a file. This led me to believe our employees are not reviewing their SSA statements. It turned out my boss's 2006 wages were also listed as zero, while his 2007 wages were correct. Come on people you need to review these statements. This is your money.

On a positive note, it looks like this will be an easy fix. I sent a copy of my W-2 for 2006 to our local SSA office. On the company's behalf, per SSA instructions, I had the entire correct 2006 wage file resent to SSA.