The U.S. Labor Department estimates there are now nearly 1 million private pension plans with $2 trillion in assets -- that's twice the national debt.
Until recently, however, there were only 260 investigators to make sure plan managers were following federal rules. The department, by its own admission, was able to review just 1 percent of the plans even though it's responsible for their oversight -- a situation that prompted the department's inspector general in 1989 to warn that mismanaged pensions could balloon into the next S&L-like; crisis.
Now a new computer system, which became operational last year, scans all the forms pension funds are required to file. Similar to the IRS' system, it targets those that trigger an alert for further investigation. In addition, the department is presently adding 100 investigators and 33 lawyers to its staff to beef up enforcement.
In fiscal 1990, the department closed 1,463 civil cases and recovered $139.4 million, according to spokeswoman Gloria Della. It also closed 36 criminal cases, and another 102 remain open.
Most of the cases, said Della, were either violations of requirements that investments be made in the interest of fund members -- or were prohibited transactions.
Karen Ferguson, director fo the non-profit Pension Rights Center, said that, while most pension plans are well managed, the department weekly turns up cases of employers looting plans by illegally borrowing assets, paying excessive fees to administrators or outright stealing.
"It's absolutely astonishing the ways people are dipping into these plans," she said.
What can you do to help make sure your plan isn't being looted?
First, pension plan members need to understand four basic rules that govern fund managers:
* They must invest the money in the best interests of the people covered by the plan, not of the employer or union or those who provide services to the plan or themselves.
* Expenses have to be reasonable; managers can't overspend on fancy offices, trips etc.; also, full-time company or union employees can't be paid for managing the pension fund.
* Investments have to be diversified; the managers can't put all a fund's eggs into one basket.
* Investments must be prudent and careful; they're not supposed to be outlandishly risky, but on the other hand, the managers can't let huge amounts sit in a 5 percent savings account when better earnings are available elsewhere at little risk.
With those in mind, fund members should look at the financial statements fund managers have to file.
"The stuff is there for the average Joe to look at," said Robert Preston, a Connecticut pension actuary, consultant and newsletter publisher. "It's a question of how much initiative they take."
L Here are steps you can take to ride shotgun on your pension:
* Read the summary annual report.
Plans covering 100 or more people have to give members a summary annual report, a short document that summarizes information from a detailed financial form filed with the government each year. In smaller groups, members get an SAR every three years; in the other two years, members get the first two pages of a government form the plan has to file.
"It's worth reading," said Ferguson. "It's the only document that alerts you, that says, in effect, this is your plan and this is how your money is invested."
The SAR tells you whether the plan meets federal funding standards, what the plan expenses were, and how much was paid in administrative costs and how much in benefits. It tells you the value of the plan's assets, a breakdown of its income and whether it had any losses. It also instructs you how to get a copy of the full report, known as Form 5500 and what items are included in that report.
The SAR could tip you off if the administrative expenses appear excessive. High costs, said Donald Grubbs, a Silver Spring pension consultant, don't directly affect members of defined benefit plans because the benefits are a promised amount; the company must make up a shortfall. But in a defined contribution plan, such as the increasingly popular 401(k) plans, in which the employer promises only to contribute a certain amount, high expenses can directly affect the rate of return.
If the SAR shows investments are losing money, or that expenses appear high, or that there are loans or leases in default, it's worth taking a look at the full report, said Ferguson.
David Ball, the assistant secretary of labor for pensions and benefits, has proposed reducing reporting requirements by eliminating the SAR and instead requiring annual benefit statements, which would include information on an individual participant's vested and accrued benefits.
Ferguson criticized the proposal as an attempt by companies to restrict information about plans' financial status. SARs impose no burden, she said, because the information is taken from more detailed reports plans are required to file with the government.
"What they should be doing is turning this document into something that is really doing its job," she said.
* Examine the Form 5500 or for smaller plans, the Form 5500-C/R.
You can get a copy of these forms from your plan administrator; a reasonable copying fee may be charged. These are also available from the U.S. Department of Labor. Send requests to Public Disclosure Room, Room N-5507, Pension and Welfare Benefit Programs, Dept. of Labor, 200 Constitution Ave., NW, Washington, D.C. 20216. List the company name, union name if it's part of the plan, nine-digit employer I.D. number off your W-2 form, the pension plan name and the pension plan three-digit number normally found on the SAR along with your name and address. There is no charge for forms up to 100 pages, which includes the overwhelming majority. Requests take three to six weeks to fill.
You should check the 5500 to see if the fund managers are meeting their legal responsibilities. Are the investments diversified? Are investments prudent? Are administrative costs excessive? How about commissions to brokers? Excessive commissions, said the Pension Rights Center, could be an indication of "churning" -- the frequent trading of securities for the purpose of generating commissions, not for making the most money for fund members.
The 5500 must disclose if there have been deals with people connected with the plan, such as company or union officials, a trustee, their relatives or people who provide services to the plan, such as lawyers or accountants. Some of these deals, called parties-in-interest transactions, are legal, and if they are, they're labeled exempt. Illegal ones are called non-exempt. Sometimes information on illegal transactions is reported, Ferguson said, because the plan administrator wasn't the person who committed the act or the penalties for non-disclosure are worse.
Pension-plan members looking over the list of investments may recognize names they know are parties-in-interest even if they aren't disclosed, Ferguson said.
"Someone could look at the list and recognize a name as someone's brother-in-law; there's no way the Labor Department would know that," Ferguson said.
Another possible tipoff, she said, is a lot of turnover among the investment managers and consultants. The 5500 must disclose whether any have quit or been fired and give the reasons; the consultants involved also have a chance to comment.
The 5500 must also list loans or leases in default and disclose whether any losses have been due to dishonesty or fraud.
The Pension Rights Center offers a handbook, "Protecting Your Pension Money: A Pension Investment Handbook" that gives detailed directions on where to find the information on the 5500 and its attached documents. Send $6 (make checks payable to Pension Rights Center) to Pension Publications, 918 16th St NW, Suite 704, Washington, D.C. 20006.
* Check the Form 5500 for the rate of return on fund investments. That will give you an idea of how well your money is being invested.
"If a company knows its people are keeping an eye on it, it may be more scrupulous," commented Denise Loftus of the American Association of Retired Persons.
If you are in a defined contribution plan, how well the money is invested directly affects how much money you will have at retirement. Remember, the company has not promised to pay you a certain amount no matter what; what you get is based on your company's and your contributions plus investment earnings. If the money is poorly invested, the amount in your account will not grow as much as it could, or it may even decline.
If you're in a defined benefits plan, it's more likely that benefits will be increased over time if the money has been well invested and grows, Ferguson said. If funds are poorly invested, the plan could reduce benefits. And if you're in a plan that is not insured by the PBGC, it could go belly up.
Four rules for pension fund managers
1. Money must be invested in the best interests of the people covered by the plan.
2. Expenses have to be reasonable.
3. Investments have to be diversified.
4. Investments must be prudent and careful.