ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, August 9, 1996 TAG: 9608090087
SECTION: BUSINESS PAGE: A11 EDITION: NEW RIVER VALLEY
DATELINE: WASHINGTON
SOURCE: ASSOCIATED PRESS
Companies will be less likely to abuse workers' 401(k) plans as a result of a new Labor Department rule requiring firms to promptly invest the retirement money, Labor Secretary Robert Reich says.
American workers stand to gain $76 million as a result of the change, Reich said Wednesday in a broad attack on problems with popular retirement plans.
He said increased policing by the Labor Department has led to the return of $10 million of workers' retirement money. He also called on Congress to plug what he described as a serious loophole in the audits of large pension plans, a weakness that can make it harder for regulators to detect fraud.
The new 401(k) rule, effective in six months, requires companies to invest money deducted from workers' paychecks into the retirement funds within 15 days after the end of each month. Workers who contribute to 401(k) plans don't pay taxes on the money until it is withdrawn.
Currently, companies can retain the money up to 90 days, which Reich said creates a temptation for misuse, ``particularly for companies that may be running into financial difficulty.''
Some companies hold on to the workers' funds the full 90 days and improperly use the funds as a type of interest-free loan to manage cash-flow problems.
``The system was being abused,'' Reich said. ``The interest on this money should be given to employees as quickly as possible, and there can be no diversion of this money.''
The tighter deadline for contributions means workers' money will be invested sooner, providing an additional $76 million in interest for workers next year, according to Labor Department calculations.
Rep. Charles Schumer, D-N.Y., praised the new rule, saying that in the age of electronic fund transfers, there's no excuse for companies to wait 90 days to deposit the funds.
The rule applies to 401(k) plans, which allow workers to build tax-deferred retirement savings through deductions from their regular paychecks. The money typically is invested in mutual funds or company stock. The fast-growing plans now hold about $670 billion invested by about 22 million people.
While calling a majority of plans ``well administered,'' Reich said the Labor Department has stepped up its enforcement efforts, with the agency refunding $10 million to 18,000 workers since March. Labor investigators opened 1,062 cases, including 56 criminal cases, which brought six convictions. Complaints have increased to 150 a week from 25 per week early this year, Reich said.
Reich also urged Congress to pass a bill pending in the Senate Labor Committee to strengthen audits for about half of the 65,000 largest pension funds.
These plans, holding $950 billion in assets and covering 23 million Americans, can receive a ``limited scope audit'' which isn't as thorough as a full annual audit, if a portion of the money is invested in banks or other regulated depositary institutions.
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