Keeping An Eye On Your 401(k)

Gary Moore was supposed to have been investing the 401(k) money belonging to employees at Connecticut's Emergi-Lite company, reports CBS News Economics Correspondent Ray Brady.

However, he pleaded guilty to embezzling it, spending as much as $2 million on homes in Florida and Connecticut, golf trips and personal credit card charges.

Pattie and Hank Dammeyer had nearly all their savings in that 401(k).

"We put our money in his hands to invest it, and we should have all that money," said Mr. Dammeyer.

However, around the time Emergi-Lite closed its Connecticut plant -- costing Pattie and Hank their jobs -- the company admitted nobody had been watching what Gary Moore did with the money. As a small company, Emergi-Lite is not required by law to hold regular audits.

"They didn't set up a check and balances system where somebody was doing the investing, somebody was doing the record keeping," said Mr. Dammeyer. "He was doing everything."

Down in Cleveland, Mississippi, Woodrow Isaacks -- "Moose" to his friends -- thought he was headed toward a comfortable retirement. Then the plant where he was working shut down.

"I said well, I lost my job. Well, nothing to worry about," said Mr. Isaacks. "I got $58,000 coming in to pay off my house and help me get my boy through college."

However, when Color Tile closed the factory where Moose worked for 38 years, the workers got shocking news. Color Tile had invested most of their 401(k) money in its stores. When the company and the stores went bust, so did the 401(k) plan.

This happened even though a Color Tile film told employees their money was absolutely safe.

"Your plan contributions always belong to you. Should you leave the company these funds are yours along with any earnings," said a company video.

Isaacks never knew his money was being invested in Color Tile.

Never has the safety of 401(k) investment funds been of more concern to Americans. Many companies are dropping traditional pension plans, and there are worries about Social Security. A growing number of the 24 million workers with 401(k)s, now are looking to them for a major part of their retirement income.

While most plans are safe, employees at companies like retailer Carter Hawley Hale, the former Dart Drug, and even giant Unisys have lost money in them.

"The laws we have for 401(k)s are not terribly good," said former Labor Secretary Robert Reich, who tried to toughen federal regulations.

He says employees should be alert, because unlike traditional pension plans or bank deposits which are covered by federal insurance "if there is fraud or if there is any error or misuse of your 401(k) money you are out of luck. Now obviously you can sue, but if the money is not there you're not getting it back."

Dorsie Kelly, nearly 60, must work in a university laundry. She lost nearly $30,000 n her Color Tile plan, and she's learned a bitter lesson: don't put all your eggs in one basket, even if it's a 401(k).

"I would put some in there and some in some other savings," she said.

Reported by Ray Brady
©1998, CBS Worldwide Inc., All Rights Reserved
  • CBSNews.com staff CBSNews.com staff

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