Sizeable participant retirement accounts, the call of early retirement for the Baby Boomers, and retirement plan provisions that permit in-service distributions – all factors that are apparently attracting promoters to get at that cash.
The NASD concerned about this danger to retirement plan participants issued an Investor Alert yesterday, Look Before You Leave: Don’t Be Mislead By Early Retirement Pitches That Promise Too Much. The Alert warned plan participants that
When faced with a pitch that promises that you can cash in your company retirement savings in your 50s, reinvest the money, and live comfortably off the proceeds for the rest of your life, many simply can’t say no. But usually they should. NASD is issuing this Investor Alert because we are aware of instances in which employees who had built up sizeable retirement savings have been misled, and financially harmed, by flawed, even fraudulent, early-retirement investment schemes.
The Alert uses as an example a recent enforcement action. The NASD fined the broker/dealer $2.5 million for failing to adequately supervise a broker who the NASD alleged lured long-term employees of a company through free seminars into retiring prematurely with unreasonable and exaggerated promises of high returns from reinvested funds from their company retirement plans.
The B/D also had to pay $13.8 million in restitution to 32 former employees. The B/D also agreed to hire a consultant who will conduct a comprehensive review of the firm’s seminar presentations, advertising, and systems and procedures relating to retirement planning and investment recommendations for retirees. In settling these matters, the B/D neither admitted or denied the charges, but consented to the entry of NASD’s finding. And what about the broker? He has been charged with securities fraud.
So here is today’s lesson – beyond the obvious that there is no such thing as a free lunch. Plan sponsors should be careful, very very careful, about selecting an individual or firm to provide investment advice to 401(k) plan participants after the January 1, 2007 Pension Protection Act effective date. Plan sponsors will still have a fiduciary obligation to select and monitor these service providers.
Here is the link to the NASD’s Investor Alert.