When you contribute to your 401(k), the funds you put into your account are vested immediately and are owned by you, even if you leave your job the next day. While companies may have different rules for when you get to keep employer contributions, any money you put into your account is 100% yours.
But what if you make a contribution and see some money disappear after a few days? Is this a sign of fraud or something you should be concerned about?
Let’s take a look at a hypothetical example. Let’s say John contributes $200 to his 401(k) account each pay period. The money is taken out of his checking and automatically invested in a target date fund based on his chosen retirement date.
But one day John logs into his account and sees that contributions have been made and the fund has been bought, then he sees the fund shares sold a few days later and the money withdrawn – but the money he contributed isn’t put back into his account.
John is worried that his employer is not telling him anything about it. Is his employer responsible for the missing money and is this a sign of fraud?
First things first. It’s important to understand that there are strict rules for how 401(k) plans are managed under the Employee Retirement Income Security Act (ERISA). ERISA sets minimum standards that cover most private sector retirement plans.
Under ERISA, employers owe workers the largest duty under the law when it comes to managing 401(k)s.
These plans typically allow payroll deductions from employees’ paychecks so that employees can automatically contribute to their accounts. When they do, employers must deposit contributions from workers’ wages in a timely manner – no later than 15 working days of the month following the payday. However, if they can reasonably deposit funds earlier, 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 this would likely be a violation of ERISA.
Although employers aren’t allowed to take funds from 401(k), that doesn’t mean it doesn’t happen illegally. As a result, the Department of Labor has identified some key red flags you should be aware of, including (1):
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401(k) returns that arrive late or irregularly
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An inexact balance
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Your contribution is not submitted on time
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A decrease in your 401(k) balance that cannot be explained by fluctuations in investments
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401(k) statements that don’t show your contributions are being made
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Different investments are listed on your statement than the ones you authorized
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Former employees find it difficult to get benefits paid correctly and on time
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Unusual transactions, such as loans to the company, trustees or corporate officers
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Frequent and unexplained changes in 401(k) plan managers.
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Signs of financial difficulties within your company
If you notice any of these warning signs, you should contact your employer and see if there is an explanation.
If your employer not provide a satisfactory explanation for what is happening, then you should file an ERISA complaint and possibly contact an attorney who can help.
Because John noticed some of these signs, including money disappearing and investments being sold without an explanation, he needs to take action—these are major red flags.
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In the best case scenario, John would find out that his money disappeared from his 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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Contribution with wrong amount
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Making an accidental double contribution
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An employer match is not calculated correctly
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Allow 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 can take back money to correct the errors. This isn’t illegal or a sign of fraud, but the company should be more than willing to let you know what’s going on when these types of fixes become necessary.
If your 401(k) contributions disappear, as John’s did, it’s important to document everything, including keeping bank statements or screenshots of online accounts, requesting a written explanation from your employer (and keeping copies), and keeping all correspondence with the company. They may also want to check with other trusted colleagues about their own accounts.
John and others who suspect wrongdoing should contact HR and/or the plan administrator immediately. They should detail the problem, explain the concerns and ask for a prompt response, following up regularly if necessary.
If the company does not provide a satisfactory response, such as proof of excessive contribution or contribution to the wrong plan, then it should consider obtaining legal assistance and contacting the Department of Labor regarding an ERISA violation.
Employees are protected from retaliation for reporting 401(k) fraud, so don’t hesitate to address the issue if you fear for your job.
Unfortunately, there isn’t much employees can do to prevent 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 not costing them money — and making sure mistakes aren’t a sign of a bigger problem.
In addition to checking your account regularly, you should consider:
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Find out how much your contributions should be and when they should be submitted
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Ask questions if there are any concerns
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Get legal help if you think you’ve been scammed
Your retirement security depends on the money in your 401(k), so take care 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. Offered without warranty of any kind.
