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With the financial markets as volatile as they've been lately, the last thing you need is another threat to your 401(k) retirement plan at work. But the latest problem with the savings vehicles that millions of investors use to put money aside for retirement has nothing to do with the markets -- and everything to do with plain old greed.

Problems in 401(k) land
Yesterday, SmartMoney reported that the Labor Department has seen a sharp uptick in the number of fraud and theft cases involving 401(k) plans. Nearly 200 investigations in the past three months have led to 20 grand jury indictments, which is well ahead of the department's typical annual indictment rate.

The problem is that theft can be as easy as simply doctoring employee pay records and creating false account statements. Especially with small employers, where a single individual may have sole control over payroll and employer retirement plans, the threat of wrongdoing is very real. And since many employees never pay much attention to their 401(k) plan accounts until they take money out of them -- typically either after they switch to another job or retire -- it's relatively easy for thieves to get away with it for a long time.

A different animal entirely
It's important to differentiate these fraud charges with lawsuits that have plagued many employers over the past several years. For instance, retirement-law specialist Keller Rohrback has led many lawsuits against companies alleging problems with their practices with respect to 401(k) plans. For instance, one current investigation that the law firm is conducting targets Northern Trust (Nasdaq: NTRS  ) , JPMorgan Chase (NYSE: JPM  ) , and State Street (NYSE: STT  ) for allegedly causing large losses to pension funds from controversial securities lending programs.

By and large, though, private lawsuits center around investments that go wrong, especially employer stock. Xerox (NYSE: XRX  ) , AIG (NYSE: AIG  ) , and Southern Co. (NYSE: SO  ) are just a few of the many companies that have settled lawsuits related to their 401(k) plans in recent years. Because the plan trustees owe a duty of fiduciary responsibility to plan participants, they can be held responsible if an investment that they provide to their employees turns out to have been inappropriate. That doesn't mean that every time workers lose money in the market, their employers will face litigation. But it does give workers a remedy in situations in which employers make serious mistakes that cost them money.

How to stay clear
Unfortunately, when it comes to protecting their money, workers are in a tough situation. They don't have the option of sending money directly to a 401(k) money manager. Only by having their employer deduct contributions from their paychecks can they take advantage of their 401(k)s. And because 401(k) contributions are just one of the categories of things that employers withhold money for, problems with 401(k) theft can easily coincide with offenses like failing to send withheld payroll taxes to the Internal Revenue Service or failing to pay premiums on health coverage and other types of employer-provided insurance policies.

Some of the more blatant examples are eerily reminiscent of the excesses that Wall Street executives were found to have indulged in. The SmartMoney story describes one employer who spent employee retirement money to buy name-brand china. Yet regardless of whether employers are living it up on your money or simply trying to keep their businesses afloat, there's no excuse for dipping into your retirement nest egg to do so.

With jobs hard to come by, you may feel that you don't have much leverage with your employer. But at the very least, make sure that you're getting regular statements from your 401(k) plan and that they're consistent with the investments you've chosen and the returns on those investments. Any discrepancies are a cause for alarm. Remember: It's unlikely that you'll face a problem, but if you do, the sooner you discover it, the better off you'll be.

Get all the help you need to protect your retirement savings. Click here and read the Fool's new special report, The 7 Secrets to Salvage Your Retirement Today.

Fool contributor Dan Caplinger had a lovely experience with an employer who decided he could steal from paycheck withholding. Dan doesn't own shares of the companies mentioned in this article. Southern Co. is a Motley Fool Income Investor pick. The Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy tells it like it is .


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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