7 Signs Your Employer is Looting Your 401(k)

Labor Department warns employees to watch out for 401(k) fraud.


Sometimes employers, service providers, or other people with authority over retirement accounts use  401(k) contributions for their own personal use or to cover business expenses. The Labor Department is stepping up its efforts to combat these and other types of 401(k) fraud. The Employee Benefits Security Administration closed 1,042 civil investigations of retirement plans in fiscal year 2009 and corrected 910 violations totaling over $17.9 million. There were also 33 criminal indictments of people who defrauded 401(k) investors last year. "Workers are often the first line of defense in identifying problems with their benefit programs early," says Phyllis Borzi, assistant secretary for EBSA. Here are some signs that fraudulent activity may be occurring within your 401(k) plan.

[See 5 Employers With Generous 401(k) Matches.]

Financial difficulties. If your employer has recently experienced severe financial difficulties, it can be tempting to raid the retirement plan. Some 401(k) plans charge unusually high administrative expenses or begin improper business dealings with parties who manage and invest plan money. Hold on to your pay stubs and 401(k) account statements to make sure all of the 401(k) contributions deducted from your paycheck make it into your retirement account.

Late account statements. An early sign that something may be wrong with your 401(k) plan is when account statements arrive consistently late or at irregular intervals.

Missing deposits. Employers are required by law to transmit employee retirement contributions to the 401(k) account as soon as possible and no later than the 15th business day of the month after the contribution was withheld or received by the employer. You should be concerned if your 401(k) account statement shows that a deduction from your paycheck was not deposited in the 401(k) or if your employer consistently fails to transmit your contributions to the plan on a timely basis.

[See How to Tell if You Have a Good 401(k) Plan.]

Unexplained losses. If your money is invested in the stock market, there may be gains or losses in your retirement account. However, if you notice a significant drop in your account balance that cannot be explained by normal market swings there may be something else going on.

Manager turnover. Most 401(k) plans occasionally change investment managers. But pay attention when there are frequent and unexplained changes in investment managers or consultants.

Unauthorized transactions. In most 401(k) plans, employees choose how to invest their money. Closely examine the investments listed on your 401(k) statement. Look for investment options that you didn’t authorize and unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees.

[See Why Your 401(k) Still Hasn't Recovered.]

Retiree complaints. Try to find out if retirees were able to get immediate access to their money or successfully roll over their account balance to another institution. If former employees are having trouble getting their benefits paid on time or in the correct amount, it could be a sign that something is wrong.

Workers who encounter 401(k) problems can report them to the Employee Benefits Security Administration by calling 1-866-444-3272.