Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, November 23, 1995                   TAG: 9511280052
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-27   EDITION: HOLIDAY 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

COMPANIES SUSPECTED OF DIVERTING 401(K) FUNDS

The Labor Department said Wednesday that it is investigating 303 companies for abuses and said 100 companies already have agreed to restore more than $2.6 million in contributions that never were deposited in employee 401(k) retirement accounts.

``We have reason to believe these companies are simply taking contributions from employees and using the money for their own purposes,'' Labor Secretary Robert Reich said.

A private business group, Profit Sharing Council of America in Chicago, said the abuses uncovered by the Labor Department don't represent a broad problem.

``You're always going to have a few bad actors,'' said David Wray, the group's president. ``Companies that find themselves in extreme financial duress are tempted to take advantage of that pool of cash to meet immediate needs. It's a rare exception.''

He said that technology makes it easier for workers to police the funds. In many cases, he said, money is transferred immediately from payrolls to retirement accounts, and employees can call an 800 number to make sure the funds were deposited.

The Labor Department said its investigation is intended as a warning to all businesses that the government is watching.

``We intend to send a clear signal to all companies, large and small, that we will increase and intensify our efforts to stop this problem,'' said Reich.

The agency expressed concern that misuse of 401(k) contributions may be replacing underfunding of traditional pension plans as a problem.

The Labor Department investigation first was reported by The Wall Street Journal.

Department spokesman Scott Sutherland confirmed that companies could face civil lawsuits and individuals at the companies could be prosecuted for misusing the 401(k) funds. The Justice Department and state prosecutors are cooperating in the investigation.

There are some 140,000 401(k) savings plans in operation nationwide, with more than $650 billion in assets. The plans are replacing traditional pensions as the main source of retirement income for millions of workers and are the only retirement plans at many companies.