Q. My question is not as much about rates as it is about the trustees fiduciary responsibility for our 401k plan. I work at a small mid-western Bank where the Bank President is trustee for the 401k plan. Our plan states it is to be self directed but we have never been given options as to where the money is invested. For the past 5 years the trustee has kept the money in very low yielding savings accounts. Now we have discovered that some time in 1995 he removed the money from the low yielding savings accounts and purchased from himself stock in another bank in which he has controlling interest. Subsequently, the new Bank stock recorded a 5 percent loss during 1995. Last year, 1996, does not appear to be any better. The money he removed from the 401k plan was used to purchase stock he owned. He then used these funds for his own personal benefit.

We have approached him about these poor investments and he tells us he can do whatever he wants with the 401k funds. Please advise how to handle this situation as we also fear for our jobs if we complain too much.

Initials and location not disclosed at writers request.

A. In a just world your boss would be wearing a suit with wider stripes. When I read your letter to Brooks Hamilton, a Dallas benefits attorney who maintains records for mid-size 401k plans, his immediate response was very direct:

"The trustee is violating all the laws that apply. The real issue is whether or not its criminal. Its a gray area and the government usually doesnt go after fellows like this but he has clearly violated just about every law that applies, including self-dealing."

I asked if he would elaborate.

"To not operate the plan in accordance with its provisions is a fundamental violation of ERISA and brings in the IRS. They can come in and audit for conformity to plan provisions. If it isnt in compliance they will make the bank go back and fix it. Fix it means they could make the bank put it like it should have been. They might, for instance, make the accounts 60/40 stocks/bonds like a typical pension plan and hold the bank and the trustee responsible to make up the difference between what that would have accumulated to and whats actually in the plan. With the market doing so well in the last few years this could be a big number.

"Basically, he has violated every ERISA standard I can think of. This is the kind of thing the IRS or Labor Department can feast on. There is no question that what he has done is illegal."

In spite of this, Mr. Hamilton was not optimistic about action or recovery. "If these people are not prepared to do battle, its very similar to being mugged. Theyve got to decide whether to get away or to fight." He recommended that you get as much documentation as possible, including an SPD ( Summary Plan Description) and a Summary Annual Report. He also suggested that you find a young lawyer who wants to make a name for himself for coaching, gather documents, and then approach the Labor department. Basically, youve got to be willing to put your jobs on the line. While it would be (another) violation of law to fire any employees over this, there is no doubt that this man is so oblivious to law and responsibility that he would do it."

Another avenue: the board of directors. Each and every one of them has professional, personal, and financial exposure in this matter.

Q. I recently executed a revocable living trust agreement. This agreement also has an exhibit A which lists all of the stocks, bonds, automobiles and house, which were in my net worth at the time of signing the trust agreement. All of these assets are in our names as joint tenants with right of survivorship. Is it required that each an every document be changed to reflect the trust agreement, and, if so, what would be the wording? Do I have a problem with the present status of the trust agreement? This agreement was not prepared by a lawyer.

—B.R., Houston, TX

A. Its time to break down and see a lawyer. While lawyers vary in competence, any one of them would be more competent at preparing a simple trust than you, me, or a friendly neighbor. Estate and trust lawyers will tell you that one of the most common problems with trust arrangements is that there are contradictions between how the ownership of the assets are styled and the trust document and the most common problem is joint tenancy.

Questions about personal finance and investments may be sent to: Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas 75265; or faxed to (214)-977-8776; e-mail to scott@scottburns.com Check the website: "www.scottburns.com." Questions of general interest will be answered in future columns.