Feds take aim at 401(k) crooks

Amid the economic downturn, 401(k) abuses by plan sponsors are on the rise.

The Employee Benefits Security Administration, the Department of Labor agency that enforces rules created by the Employment Retirement Income Security Act of 1974, would not release the number of investigations it has recently opened into potential 401(k) plan violations. However, that number has climbed as the economy has faltered, said Virginia Smith, director of the Office of Enforcement at the EBSA.

“Typically, the charges that we bring are embezzlement or theft,” she said. Ms. Smith spoke last month during a webcast on fiduciary issues concerning defined contribution pension plans that was sponsored by the American Law Institute-American Bar Association in Philadelphia.

Much of the increase can be attributed to the fact that the EBSA has recently begun referring smaller-dollar criminal cases to state and local prosecutors, she wrote in an e-mail. Previously, such cases might not have been pursued, Ms. Smith added.

The EBSA is also seeing a rise in the number of 401(k) plans that are being abandoned by plan sponsors, she said.

Since launching its abandoned-plan program in May 2006, the EBSA has received more than 300 applications to close 401(k) plans that have been deserted by their sponsors. The program has led to the distribution of more than $10 million in assets to more than 700 plan participants.

Under the program, insurance companies, banks, trust companies and mutual funds that hold abandoned-plan assets can apply to the EBSA to close a plan and distribute the assets to participants.

During the past 12 months, EBSA has received about 180 applications to close abandoned plans, up from 76 during the program’s first year of existence.

E-mail Sara Hansard at [email protected].