Employee Benefit Plan: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

401(k) Abuses

As a fiduciary to a 401(k) plan or even as a participant in your company’s 401(k) plan, there are some warning signs you can watch for when it comes to how the Company is handling their 401(k) fiduciary responsibilities including contributions.  The Department of Labor has seen many instances of fraud within 401(k) plans including where a company uses the money coming in from contributions for another purpose or holds the money too long once it has been withheld from an employee check. 

There are several signs that you would see if fraud is being committed with regard to the Company’s 401(k) plan.  A few of those signs include the following:

• Untimely remittances of contributions: If the company has withheld the contributions from a pay check, they should be remitting those funds as soon as it is feasibly possible.  This untimely remittance could be caught by monitoring when your contributions are submitted to the plan’s trustee.  If contributions are submitted at irregular intervals, or are consistently late – this poses as a warning sign.
• Account balance appears unusual: Fiduciaries can monitor statements provided by the third party administrator for any unusual balances or transactions.  Additionally, if you are a participant, monitor your account for any unusual fluctuations that you would not expect.  Maybe your account only increased due to increases in the market, however, your contributions were not being submitted to the plan. Knowledge of the flow of funds into and out of your account is absolutely necessary.
• Investments listed on a participant statement are not what the participant selected: Participants should review their quarterly statements from the third party administrator to determine that the elections that they made are proper. Fiduciaries can implement regular checks to determine that elections are properly submitted to the third party administrator appropriately by the responsible party.
• Former employees are complaining about timeliness of receiving their benefits or they are having difficulty receiving the proper amounts: If a fiduciary or participant hears of a former employee having difficulties either with receiving their benefits or receiving the proper amount, a red flag goes up.  This should be reason enough to look into the issue further.

If for any reason you suspect that there is misuse of 401(k) funds or that the 401(k) plan is being abused, contact the plan’s trustee.  Their contact information can be found in your plan’s Summary Plan Document (typically towards the back).  In extreme situation when, after contacting the trustee, you still feel that a fraud is being committed, you can contact the Department of Labor. 

Shelby Williams