What do you get when you combine a lot of 401(k) money, an increased threat of fraud and a lack of understanding of financial basics?

The answer, according to a recent discussion of experts, is both the opportunity for helping people with retirement but also the possibility of fraudulent or inept handling of lump-sum distributions. The discussion was held during the annual meeting of the Society of Actuaries here. SOA is based in Schaumburg, Ill.

During a session titled ‘Retirement: Risk is Opportunity,’ panelist Martha Priddy Patterson, a director with the Washington office of Deloitte Consulting LLP, talked about the confluence of events.

Patterson started her comments by noting that more money has migrated to defined contribution plans and the upcoming wave of baby boomers will receive lump sum distributions.

“It is an opportunity not only for boomers but is also an opportunity for out-and-out thieves and incompetent financial advisors,” said Patterson. “There are those who would like to separate people from their retirement benefits as they begin to receive lump sum distributions.”

While there are many out there who would “pick off as much of retirement lump sums as they can,” Patterson also noted that there are also financial advisors who are “relatively knowledgeable” and who want to do a good job but are simply not sufficiently trained.

The U.S. Securities and Exchange Commission has done a good job on issues such as taking measures to stop firms that lure seniors to make financial decisions by offering free dinners, she noted.

But, she said, there are problems such as the numerous different types of financial products as well as the number of different regulatory agencies overseeing the sale of these different products. Among the different layers of enforcement she enumerated were the SEC and federal banking agencies as well as state insurance and securities regulators.

However, Patterson did note that many state regulators and federal agencies are doing a good job of partnering to prevent fraud. And, she continued, in states where insurance and bank and securities regulation are brought together under one agency and one commissioner, anti-fraud efforts do seem to work smoothly.

Another problem, according to Patterson, is the real need for consumers to be better educated financially.

Patterson discussed a recent set of three financial questions posed to consumers. The first question asked participants, ‘If you had $100 to invest and it compounded at 2% annually, how much would you have at the end of the year?’ The choices were $102, less than $102 or more than $102. Sixty-seven percent of participants responded correctly. Among women, the response rate was 62%.

A second question asked, ‘If you were receiving an interest rate of 1% and the inflation rate was 2%, would you be able to buy more or buy less?’ Three-fourths of respondents answered correctly, but women had a 71% response rate, according to results.

And, a third question asked, ‘Is buying a single company stock safer or riskier than buying a mutual fund?’ A total of 52% answered correctly, responding that it was riskier, while the response rate for women was 48%.

Patterson said there has to be more publicity about the need for more education and that ways need to be found to get consumers to take advantage of information that is readily available. For example, she said there is a lot of good consumer information on websites including the SEC, Department of Labor and the Department of the Treasury.

After the remarks, audience members offered their input. One comment suggested that the U.S. could learn from other countries that require annuitization rather than giving retirees a lump sum distribution.