Money deducted from your paycheck for retirement typically gets deposited quickly into your 401(k) plan. But this isn’t always the case. Sometimes this money ends up in another account. In most circumstances, the missing money is nothing more than an unintentional mistake; other times it is a case of embezzlement. Therefore, employees and executives need to understand how to protect themselves and safeguard their retirement assets.
On December 5, 2012, the Labor Department won a suit against B & K Builders of Marshfield, Wisconsin. The case alleged that co-owners Kenneth Staab and Robert Aschenbrenner had failed to remit 401(k) contributions that had been withheld from employee paychecks for three years. After a slew of legal fees, the owners were removed as fiduciaries, and the plan was required to return $22,847.86 back to employee accounts.
How to Spot Retirement Plan Fraud
Retirement plan fraud is more common than you might think. For the first six months of 2013 through the end of June, the Department of Labor’s Employee Benefits Security Administration (EBSA) oversaw 171 cases with over $4 million in participant contribution recoveries. And that doesn’t count the number of cases that have yet to be caught. Both employees and their employers should pay attention to the following red flags as evidence that something may be amiss.
Missing or tardy contributions. If you don’t see your paycheck deductions deposited in your 401(k) account soon after your payment period, you may have a problem. The Department of Labor has issued guidelines suggesting that small businesses should deposit this money within seven days. When these cases are prosecuted, delinquent businesses will owe both principal and opportunity cost interest.
Contributions don’t reconcile. Another problem could be occurring if your deposit is less than your deduction. There are cases where a payroll servicer skimmed 401(k) funds into their own account before making deposits. The basic rule of thumb is to review your retirement plan statements carefully, just as you would your bank account, and check against your paycheck stubs.
Unusual investments. Another red flag to consider occurs when a 401(k) plan invests in assets that are not publicly priced and traded. Just over a year ago, the Department of Labor found a 401(k) plan trustee guilty of using $3 million in 401(k) assets to purchase an interest in a golf resort used by this same person. The Employee Retirement Income Security Act (ERISA) law of 1974 clearly states that a plan fiduciary cannot use plan assets for the benefit of a party-in-interest. This includes a prohibition against loaning funds to a party-in-interest.