Here's a quiz: Name the greatest threat to your 401(k): a) fraud, b) corporate bankruptcy, c) clerical errors. The answer is C, the least scary-sounding of the three but by far the most common problem plaguing 401(k) plans. Believe me, I know. Before becoming a journalist, I spent nearly two years as a 401(k) administrator, and I saw just how easy it is for misinformation to creep into accounts.
Fortunately, most mistakes are easy to catch and correct. Based on my experience and interviews with a dozen private and government pension experts, I've assembled a quick guide to protecting your retirement savings.
Administrative error. In my brief time in the 401(k) business I saw some frightening foul-ups: contribution data deleted, withdrawals credited to the wrong person, money invested in the wrong funds, or worse yet -- not invested at all. The best way to make sure none of these mishaps does permanent damage to your account is to read your quarterly statement carefully.
Pay special attention to the earnings column, which is where many mistakes occur. That's mainly because many plans' record-keeping systems compute earnings indirectly. They compare the opening and closing balances, factor in all deposits and withdrawals, and then assume that the difference represents earnings. So if any transaction was overlooked, for example, or counted twice, the earnings figure will be inaccurate.
If you spot an error, point it out to your benefits office, and chances are it will be fixed right away. If the problem still hasn't been corrected by the time you get your next statement, complain in writing to your benefits office and the plan administrator.
In the unlikely event you cannot get a serious error corrected, Cindy Hounsell, an attorney with the Pension Rights Center, a nonprofit watchdog group, suggests that you hire a lawyer.
"A letter from a lawyer tends to get more attention than one from an employee," she says.
Miscues can also occur as you take money out of the plan when changing jobs or at retirement. If you think that you've been shortchanged, try to resolve the problem with your employer. But if you are unable to settle the dispute after a couple of months, consider calling the National Center for Retirement Benefits (800) 666-1000, a private, for-profit firm. The NCRB's "pension detectives" will examine your account and try to get your money back. The price may be high: The company keeps as much as 50 percent of whatever it recovers for you. But because the firm specializes in pension problems, it may be able to net you more than a lawyer would.
Corporate bankruptcy and fraud. Your account is held in trust for you, so your money is usually safe even if your company goes broke. But bankruptcy and fraud often go hand in hand. In the past year, the U.S. Department of Labor opened 657 criminal and civil fraud investigations of 401(k) plans, up from just 77 the year before (I the past, the DOL has found wrongdoing in about a quarter of the cases it probes). The most common problem: financially troubled small companies tapping participants' money to pay their bills.
Again, your best defense against outright thievery is to scrutinize your statement. Make sure your contributions are being deposited promptly (by law, your employer has 90 days to transfer the money withheld from your paycheck into your account) and look for records of unauthorized loans or withdrawals. If you spot something suspicious and you can't get a satisfactory explanation, call a pension adviser at the DOL's Pension and Welfare Benefits Office in Washington, D.C. 202-219-8776.