When you contribute to your 401(k), the amount you put into your account vests immediately and is yours to keep, even if you quit your job the next day. While companies may have different rules on when employer contributions are allowed, all money you put into the account is 100% your own.
But what if you make a contribution and a few days later notice that some of the money has disappeared? Is this a sign of fraud or something you should be concerned about?
Let’s look at a hypothetical example. Say John contributes $200 to his 401(k) account each pay period. The money is withdrawn from his check and automatically invested in a target date fund based on the retirement date he chooses.
But one day, John logs into his account and sees that contributions have been made and the fund purchased, and then a few days later he sees that the fund’s shares have been sold and the money withdrawn – but the money he contributed hasn’t been put back into his account.
John is worried that his employer is not telling him anything about this. Is his employer responsible for the missing money, and is this a sign of fraud?
First things first. It is important to understand that under the Employee Retirement Income Security Act (ERISA) there are strict rules governing how 401(k) plans are managed. ERISA sets minimum standards that cover most private sector retirement plans.
Under ERISA, employers must pay workers the highest fees under the law when it comes to managing 401(k)s.
These plans typically allow for salary deductions from the worker’s paycheck, so employees can automatically contribute to their account. When they do, employers must collect contributions from workers’ paychecks on time — no later than 15 business days in the month following the payday. However, if they can raise a reasonable amount quickly, they should.
Employers are not allowed to misuse 401(k) funds, and companies must take steps to protect your money, including against cyber attacks. Employers cannot withdraw money from your 401(k), and doing so may violate ERISA.
While employers aren’t allowed to take funds from your 401(k), that doesn’t mean it doesn’t happen illegally. Consequently, the Department of Labor has identified some key red flags you should be aware of, including (1):
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401(k) statements that arrive late or irregularly
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A false balance
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Your contribution was not broadcast in time
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A decline in your 401(k) balance that cannot be explained by investment fluctuations
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401(k) statements that don’t show your contributions have been made
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Your statement lists different investments than you authorized
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Ex-employees are finding it difficult to pay benefits accurately and on time
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Unusual transactions such as loans to companies, trustees, or corporate officers
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Frequent and unexplained changes in 401(k) plan managers
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A sign of financial difficulty within your company
If you find any of these warning signs, you should contact your employer and see if there is an explanation.
If your employer does not Provide a satisfactory explanation of what is going on, then you should file an ERISA complaint and contact an attorney who can potentially help you.
John has seen many of these signs, including money disappearing and investments being sold without explanation, that he needs to take action – these are major red flags.
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In a best-case scenario, John will discover that his money disappeared from the 401(k) because of a simple mistake. While companies have strong obligations when it comes to managing 401(k) accounts, mistakes can still happen. These may include:
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Contribute the wrong amount
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Making accidental double contributions
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An employer match is not calculated correctly
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Allowing employees to accidentally contribute more than the IRS allows
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Transferring employee contributions to the wrong 401(k) account
If this happens, the company may withdraw the money to correct the errors. It’s not illegal or a sign of fraud, but the company should be willing to let you know what’s going on when these types of improvements are necessary.
If your 401(k) contributions disappear like John did, it’s important to document everything, including keeping account statements or screenshots from online accounts, requesting a written explanation from the employer (and keeping copies) and keeping all correspondence with the company. He may also want to check with other trusted colleagues about their own accounts.
John and others who suspect a mistake should contact their Human Resources Department and/or Plan Administrator immediately. They should describe the problem, explain the concerns, and ask for an immediate response, following up regularly if necessary.
If the company does not provide a satisfactory answer, such as providing proof of overcontribution or contributions to the wrong plan, then they should consider getting legal help and contacting the Department of Labor about an ERISA violation.
Employees are protected against retaliation for reporting 401(k) fraud, so don’t hesitate to address the issue because you fear for your job.
Unfortunately, there’s not much employees can do to stop their companies from making mistakes.
The key is for workers like John to regularly check their statements and accounts, making sure errors are corrected and don’t cost them money — and mistakes aren’t a sign of a bigger problem.
In addition to checking your account regularly, you should consider:
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Learning how much your contribution should be, and when it should be deposited
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Ask questions if you have any concerns
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Getting legal help if you think you’ve been scammed
Your retirement security depends on the money in your 401(k), so be careful to monitor and protect it.
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US Department of Labor (1).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
