The good news about the Department of Labor's revelation about its investigation of some 300 companies for possibly mishandling employee contributions to their 401(k) plans is that the complaints involved a relatively small amount of money. The bad news is that the revelation shows at least two problems in overseeing pension plans.
One problem is the dichotomy of overseeing small and large companies. The vast number of small companies overwhelms the Labor Department's effort to monitor compliance by pension sponsors, raising public policy concerns as the department proposes extending pension coverage to more small employers. How will these be monitored?
The other problem occurs when some major publications - such as the Los Angeles Times and Chicago Tribune - mix news reports about the 401(k) asset misuse with other, completely separate pension issues, such as Republican pension reversion proposals. Reports such as these contribute to public confusion about retirement issues - which have a hard enough time commanding public attention and understanding. This confusion harms public policy-making as well, making it difficult to generate support for reforms.
On the first issue, the total loss to the 401(k) employees in the 310 plans under investigation is relatively small compared with the $650 billion in 140,000 such plans, although that in no way minimizes the importance of the misused contributions to each participant. The department has so far retrieved about $3.5 million.
Oddly, Labor Secretary Robert Reich hasn't estimated the total loss involved in the investigation or named the companies. Employees at these companies should know their 401(k) plans are under a cloud. This reticence contrasts with his practice of naming companies with the worst underfunded defined benefit plans. This underfunding, however distressing, does not represent an immediate loss to participants, unlike in the 401(k) plan cases.
The 401(k) investigations show the difficulty the Labor Department has monitoring so many plans. It can never have enough investigators. But it shouldn't be alone in overseeing the plans. It is planning to require separate, independent trustees for these plans. This is a good step. Independent trustees, which many of these plans apparently did not have, would likely have served to protect the beneficiaries. The DOL should ask what the actual trustees of the affected plans were doing when this misuse occurred and whether actions need to be taken against those trustees. If a few trustees are sued to make the plans whole, other trustees will become more effective monitors.
Understanding what happened in the 401(k) plans is complex. That's why it's unfortunate some news outlets have failed to assist the public. In reporting the 401(k) investigations, some publications quoted a union leader, saying, the probe "gives substance to our worst fears. This is why we are so concerned about legislation advanced by Republicans.*.*. to allow corporations to skim money from workers' pensions." Never mind, the union leader is talking about defined benefit plans and a proposal to allow reversion of excess pension assets and not to lower anyone's promised pension. An informed reporter wouldn't have messed up the story. The DOL's reticence and the mistaken news reports are reasons why pension reform is so difficult to pass. The public has a hard time becoming informed about its own interests.
