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The primary purpose of a pension fund is to provide retirement benefits to
its participants and beneficiaries. Plans often will have to rely on others
to provide some of the record keeping, investment management, accounting,
legal and other administrative services needed to accomplish this purpose.
Federal law makes it unlawful for those running the plan to pay anything
more than reasonable fees and commissions for those services.
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Reasonableness of fees and commissions is determined by the specific facts
and circumstances of individual plan transactions. Under regulations of the
Department and the IRS, however, "excessive" compensation in
excess of amounts ordinarily paid for like services by like enterprises
under like circumstances, will not be "reasonable
compensation." Nor does "reasonable compensation" include any
compensation (other than direct expenses) paid to a plan administrator,
trustee or other plan fiduciary who is already receiving full-time pay from
an employer (or an employee organization) whose employees or members are
participants in the plan.
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If you are in a larger plan, you can find out how
much your plan is paying in day-to-day expenses by looking at Item 32
on page 6 of the Form 5500. In Item 32g(1) you will find the amount paid
in salaries to people running the plan. Items 32g(2) through 32g(8) show
the total fees and commissions to accountants, actuaries, investment
managers, lawyers, plan trustees and other consultants. Item 32g(9)
includes all "other expenses" such as rent, office supplies,
telephone equipment and postage.
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To find out what percent of plan money was spent to run the plan, add all
the administrative expenses shown in Item 32g and divide that figure by the
plan's total assets shown in Item 31f, column (b).
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For smaller plans, the Form 5500-C will show
administrative and other expenses in Item 28h and i on page 6. The Form
5500-R shows the plan's expenses in Item 14b on page 2.
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information on who provided services to the plan during the year, and how
much they were paid, you should look at the Form 5500 Item 25a on page 4
to see if the plan has attached a document known as a "Schedule C"
to the Form 5500. Part I of Schedule C should list everyone who was paid
$5,000 or more by the plan during the year (other than plan employees
earning less than $1,000 a month.) (Code numbers identify the type of
service. Key codes which may assist in policing your plan are: accounting
services is 10; actuarial 11; administration 13; stock brokerage 15;
investment management 21; legal 22. The instruction sheet for the Schedule C
has a complete list of codes.) Plans filing the Form 5500-C or
5500-R do not report this information.
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Note: If your company, rather than the plan, is paying
the administrative expenses, the form may not list those expenses. That
does not mean that you should be unconcerned about administrative
expenses. The more the company pays to run the plan, the less it might be
willing to contribute for benefits.
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To check on how much the company has been spending on
administration, you should first look at Item 33 of the Form 5500 which asks
whether the plan sponsor paid any administrative expenses of the plan not
listed on the Form 5500. If the answer is "yes," you may have to
get a copy of the company's annual report that goes to the stockholders or
ask the plan administrator for the figures. This information is not reported
on the Form 5500-C/R and may not be available to you in all cases, even for
plans that file a Form 5500.
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To make sure that the money to pay your benefits is there when you retire,
pension investments generally should not be concentrated in one place. If
the stock market goes down or real estate values drop, the pension fund
could be in trouble if all the money were in only a few stocks or only in
real estate.
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Your plan may have a unique breakdown of investments
because there is no single standard that determines whether a plan is
adequately diversified.
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 Diversification problems may involve, for example:
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Concentration among types of
investments, in which too much is invested in stocks, bonds, or real
estate, etc.
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Concentration within types, such as
having the plan's stock holdings all in one or two stocks
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Geographical concentration of
investments, e.g., are all real estate investments of the plan in one
geographic area. When you review a plan's investment diversification, it
is usually important to look into the facts and circumstances behind the
plan's overall investment picture.
If
you are in a larger plan, a general breakdown of your pension fund's
investments will be shown in Item 31 on page 5 of the Form 5500.
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For smaller plans, plan investments are broken down in
Item 27 on page 6 of the Form 5500-C (this detailed information is not
reported in the year for which the plan files a Form 5500-R). You should
also look at Form 5500-R Items 15k and l and Form 5500-C Items 26k and l to
see if more than 20 percent of the money in the plan was put into one
investment.
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Is your pension fund getting a good return on its investment? Be careful
about trying to answer this question on the basis of only one year. It is
generally better to look at the plan's investment record over a period of
several years.
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The Form 5500 or 5500-C/R contains information on the
plan's overall finances. It does not contain individual account information.
For defined contribution plans in which participants make decisions on the
investment of their own individual accounts, the plan's overall investment
performance may not reflect how your account is doing. Participants will
need to look instead at information they may receive on their individual
accounts.
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With those cautions, you can compare your plan's assets
at the beginning of the year and the end of the year to get a general sense
of how the plan is doing. For larger plans, this information in on the Form
5500 at Items 31f and 31l. For smaller plans, look at the Form 5500-R, Items
13a and 13c, and the Form 5500-C, Item 27f and 27k. This is only a general
measure because asset increases may include employer and employee
contributions as well as investment gains and asset decreases may reflect
payment of benefits during the year as well as investment losses.
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The following formulas may be helpful in using the plan's
Form 5500 or Form 5500-C to get a rough idea of how much the plan earned or
lost on its investments --- sometimes called a rate of return:
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Form 5500 Formula For
Rate of Return |
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Items 32b(1)(H)
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=
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Income From Interests
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Items 32b(2)(C)
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=
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Income From Dividends
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Items 32b(3)
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=
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Income From Rents
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Items 32b(4)(C)
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=
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Gains/Losses From Sale Of Assets
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Items 32b(5)
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=
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Unrealized Gains/Losses
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Items 32b(6) through (10)
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=
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Gains/Losses On Special Investments
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Add
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Items 32c
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=
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Other Income
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Total Annual Gains/Losses
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Total Annual Gains/Losses
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Divided By
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Net Assets At Beginning of Year
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=
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Form 5500 31l, col. (a)
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Equals
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Rate Of Return
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Form 5500-C Formula For
Rate of Return |
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Item 28c
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=
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Earnings From Investments
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Item 28d
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=
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Gains/Losses From Sale Of Assets
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Add
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Item 28e
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=
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Other Income Including Unrealized Gains/Losses
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Total Annual Gains/Losses
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Total Annual Gains/Losses
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Divided By
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Net Assets At Beginning of Year
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=
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Form 5500-C 27k, col. (a)
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Equals
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Rate Of Return
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Note: This type of detailed information is not
reported in the years the plan files a Form 5500-R.
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For defined benefit plans (a plan that promises a
specific benefit at retirement, for example, a percentage of pay or a set
dollar amount multiplied by the number of years you work), there is
another way to find a rough measure of your plan's investment performance.
Look for an attachment to the Form 5500 or Form 5500-C/R called a
"Schedule B." Item 6h on page 2 of the Schedule B will give you
a figure for estimated investment return. The figure on the Schedule B is
based on a more complicated calculation and may not exactly match the
figure you got using the above formulas.
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In addition to looking at the rate of return, there
are other ways to check for sound asset management practices.
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Has the plan lost money as the
result of fraud or dishonesty? If the plan has lost money during the year because of such
criminal activity, this information must be disclosed in Item 29b on
page 5 of the Form 5500. Item 29 will also show whether the people
responsible for handling plan money are covered by a "fidelity
bond" and the amount that the bonding company would pay the plan
if money was lost because of dishonest acts covered by the bond.
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Are any loans or leases in
default? If so, that means the plan is having difficulties collecting money
owed to it. Loans or leases in default will be indicated in Item 27b
and c on page 4 of the Form 5500, and a listing of these loans or
leases should be attached to the Form.
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Has the plan made frequent
changes in investment managers or other plan consultants? You may want to see whether your plan keeps replacing investment
managers, insurance carriers, trustees or other consultants. Items
25c, d and e on page 4 of the Form 5500 will tell you if consultants
have quit or been fired during the year, and if there were any
disputes about matters involving their professional judgement. If an
accountant, actuary or investment manager has been terminated, the
reason for the termination must be stated in Part III of the Schedule
C attached to the Form 5500.
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For
smaller plans, information about losses to the plan caused by fraud or
dishonesty are in Form 5500-R Item 15c on page 2 and Form 5500-C Item 26c
on page 5. Plans are asked whether they are covered by fidelity bonds in
Form 5500-R Item 15a and Form 5500-C 26a.
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Information about small plan loans that are
uncollectible or in default are in the forms at Item 15i and 26i,
respectively. In addition, in Items 15g and 26g, there is a question about
whether the plan has granted an extension on any delinquent loan.
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There are no questions about the termination of plan
consultants in the Form 5500-C or 5500-R, and there is no listing of plan
officials or consultants other than the plan administrator.
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Smaller plans must also say in Form 5500-R and 5500-C
whether they bought non-publicly traded stocks and bonds (Items 15n and
26n) or received non-cash contributions (Items 15m and 26m) not appraised
by an independent third party.
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Finally, if you are in a larger plan, you also want
to look at the accountant's opinion attached to the Form 5500. Items
26b and 26c tell you whether the independent public accountant who
reviewed the plan's financial statements had any major problems with those
statements.
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The
accountant's opinion should be "unqualified." If it is
"qualified" or "adverse," there will be an explanation
in the attachment. It is possible that the accountant's opinion is
"qualified" solely because some of the assets are held by a bank
or insurance company regulated by a state or federal government agency,
and the accountant was not required to audit the financial statements
relating to those assets.
The accountant's opinion may also provide valuable
information about the plan's investments.
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Smaller plans are not required to file an accountant's
report.
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Federal pension law gives you access to a variety of plan information,
including plan rules, financial information and documents on the operation
and management of a plan. The following chart briefly describes the
documents available to you and where you may obtain them.
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If a plan administrator refuses to comply with your request for documents,
and the reasons for the delay are within his or her control, a court may
impose a penalty of up to $100 per day. The Department of Labor does not
have the authority to impose this penalty.
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The Internal Revenue Service also has some plan documents available for
public inspection. These include the applications filed by pension plans to
determine if they meet federal tax-qualification requirements, applications
filed by certain organizations to determine if they qualify as tax-exempt,
and the IRS's responses to these applications. You should contact the
Internal Revenue Service office nearest you, which is listed in the blue
pages of the telephone directory.
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Type of
Document
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Who Did You Get It From
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When You Can Get It
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Your cost
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Summary Plan Description (SPD): This summary
of your pension plan tells you what the plan provides and how it
operates.
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Plan
Administrator
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Upon Written Request
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Reasonable
Charge
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Automatically within 90 days of your becoming covered
under the plan
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Free
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Automatically every 5 years if your plan is amended
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Free
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Automatically every 10 years if your plan has not been
amended
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Free
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Department
of Labor
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Upon request
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Copying
Charge
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Summary of Material Modifications (SMM): This
summarizes material changes to your plan.
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Plan
Administrator
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Automatically within 210 days after the end of the plan
year for which the plan has been amended or modified (distribution of a
revised SPD satisfies this requirement)
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Free
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Department
of Labor
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Upon request
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Copying
Charge
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Summary Annual Report: This summarizes the annual
financial reports that most pension plans file with the Department of
Labor.
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Plan
Administrator
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Automatically within 9 months after the end of the plan
year, or 2 months after the due date for filing the annual report.
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Free
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Annual Report (Form 5500 Series): Annual
financial reports that most pension plans file with the Department of
Labor.
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Plan
Administrator
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Latest annual report upon written request
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Reasonable
Charge
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Department
of Labor
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Upon request
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Copying
Charge
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Individual Benefit Statement: A statement describing your
total accrued and vested benefits is required to be provided by most
pension plans.
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Plan
Administrator
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Upon written request once every 12 months
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Free
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Documents and instruments under which the
plan is established or operated: This includes, for example, the plan
document, collective bargaining agreement, trust agreement, SPD, SMM,
and latest annual report.
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Plan
Administrator
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Upon written request
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Reasonable
Charge
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Available for inspection upon request
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Free
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Disclosure Notice: Plan administrators with plans less
than 90% funded must inform you about the plan funding level and limits
on PBGC's guarantees.
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Plan
Administrator
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Within 2 months after the due date for filing the annual
report
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Free
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Documents filed with the Labor Department can be obtained by contacting the
U.S. Department of Labor, EBSA, Public Disclosure Facility, Suite N-5638, 200
Constitution Avenue, NW, Washington, DC 20210, Tel 202.219.8771.
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Increasingly employees are asked to make voluntary or mandatory
contributions to pension and other benefit plans. This is particularly true
for 401(k) savings plans. These plans allow you to deduct from your paycheck
a portion of pretax income every year, invest it and pay no taxes on those
contributions until the money is withdrawn at retirement.
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An anti-fraud campaign by the Department uncovered a
small fraction of employers who abused employee contributions by either
using the money for corporate purposes or holding on to the money too long.
Here are 10 warning signs that your pension contributions are being misused.
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10 Warning Signs
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Your 401(k) or individual account
statement is consistently late or comes at irregular intervals
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Your account balance does not appear
to be accurate
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Your employer failed to transmit your
contribution to the plan on a timely basis
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A significant drop in account balance
that cannot be explained by normal market ups and downs
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401(k) or individual account statement
shows your contribution from your paycheck was not made
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Investments listed on your statement
are not what you authorized
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Former employees are having trouble
getting their benefits paid on time or in the correct amounts
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Unusual transactions, such as a loan
to the employer, a corporate officer, or one of the plan trustees
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Frequent and unexplained changes in
investment managers or consultants
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Your employer has recently experienced
severe financial difficulty
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Three federal government agencies have authority to investigate possible
violations of the rules for private pension plans and to bring lawsuits or
assess penalties against individuals engaged in illegal actions: the
Department of Labor, the Internal Revenue Service and the Justice
Department.
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Department of Labor -
If you think the plan trustees or others responsible for investing your
pension money have been violating the rules, you should call or write the
nearest field office of the U.S. Department of Labor's Employee Benefits Security Administration
(EBSA). The Labor Department has authority to
investigate complaints of fund mismanagement. If an investigation reveals
wrongdoing, the Department can take action to correct the violation,
including asking a court to compel plan trustees and others to put money
back in the plan. Courts can also impose penalties of up to 20 percent of
the recovered amount and bar individuals from serving as trustees and plan
money managers.
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Internal Revenue Service -
If you suspect that individuals providing services to the plans have
gotten loans or otherwise taken advantage of their relationship to the plan,
the Employee Plans Division of the Internal Revenue Service may want to take
a closer look. The Internal Revenue Service is authorized to impose tax
penalties on people involved in unlawful "party in interest"
transactions.
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Note: If you are planning to provide information to the
Internal Revenue Service about an unlawful party in interest transaction,
you should consider filing a written claim for an Informants' Reward with
the Intelligence Division of the IRS at the same time. If the IRS collects a
penalty tax as the result of your information, there is a possibility that
you could receive up to 10 percent of the amount collected.
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Department of Justice -
Cases of embezzlement or stealing of pension money, kickbacks or
extortion should be referred to the Federal Bureau of Investigation or the
Labor Department field office in your area. If illegal activities are found,
the case can be referred to the U.S. Department of Justice for prosecution.
Criminal penalties can include fines and prison sentences, or both.
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Federal pension law makes it unlawful for employers to
fire or otherwise retaliate against employees who provide the government
with information about their pension funds' investment practices.
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The most effective way to present your concerns to
government investigators is to provide them with a short summary of the
problems you have found and supporting documents.
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Collecting information -
You have a legal right to ask the plan administrator for the plan's
latest Form 5500 or Form 5500-C/R. You also have the right to ask for a copy
of:
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The summary plan description
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The plan document
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The trust agreement setting up the
plan, if separate from the plan
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Any collective bargaining contract, if
appropriate
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Any other instrument under which the
plan was established or is operated.
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Make all requests for plan documents in writing. You may
have to pay reasonable copying costs. If you have trouble getting the
documents from your plan, contact EBSA's Division of Technical Assistance
and Inquiries in Washington, D.C. or the EBSA field office nearest you. (See
Appendix for EBSA directory)
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If the administrator fails to give you information you
are entitled to within 30 days of your written request, and the reasons for
the delay are within the administrator's control, you also have the right to
bring a lawsuit against the plan administrator, and ask the court to make
the plan administrator pay you a fine of up to $100 a day for every day the
administrator goes over the 30-day deadline. It is a good idea to send your
request by certified mail return receipt requested so that you will have a
record of when you made the request.
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If you would rather not ask your plan for the
information, you can obtain Form 5500s and Form 5500-C/Rs after they have
been filed with the government and processed from EBSA's Public Disclosure
Facility.
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If you find that your pension plan has not filed the Form
5500s or Form 5500-C/Rs, the forms are incomplete or contain false or
misleading information, you should immediately notify the nearest EBSA field
office. The Labor Department has authority to assess civil penalties against
plan administrators who fail or refuse to comply with annual reporting
requirements.
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Government agencies have limited resources and are unable
to investigate all claims of fund mismanagement. You may also want to
contact a lawyer.
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Even if you think you cannot afford the cost, you may
still be able to find a lawyer to take your case. This is because the law
provides that a court has the power to award attorney's fees if you win a
pension case.
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To find a lawyer, you should check with the lawyer
referral service of your state, city or county "bar association."
Ask for a lawyer experienced in pension law who is willing to represent
workers and retirees.
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