Many American workers save for retirement by contributing regularly to a 401(k) plan, and hope to accumulate enough funds to cover their golden years. This isn't always the case, as some illicit corporate dealings and unsavory activities have robbed some people from a life free of financial concern.
Retirement plan fraud isn't a rare occurrence. In fiscal year 2014, Employee Benefits Security Administration investigators closed 263 civil fraud cases, and recovered more than $3.3 million total employee contribution,
according to the Department of Labor website.
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While there are no guarantees, there are ways for employers and their employees to shield themselves from being scammed out of hard-earned savings.
Be diligent. If you don't see your paycheck deduction deposited in your 401(k) account within seven days of a payment period — as per the Department of Labor suggested guideline for small businesses — don't assume everything is OK. You can monitor your account online, through a Department of Labor 800 number or review your quarterly statement.
Another red flag could be if your deposit in the 401(k) differs from the deduction. In some cases, a payroll services gifted some 401(k) funds into a separate account before completing deposits. A careful review of your retirement plan statements, checked against paycheck stubs, can uncover discrepancies. Be concerned if you're balance doesn't match.
Watch for unauthorized investments. Be aware if your 401(k) plan invests in assets that aren't publicly priced and traded, such as a stake in a business that directly benefits the investor.
In July 2013, well-known 401(k) fiduciary advocate Matthew Hutcheson received a 17-year prison sentence for stealing more than $5 million from his retirement plan clients,
according to Investment News. He used the funds to make repairs on his home and to buy an interest in an Idaho golf course and lodge in the name of Green Valley Holdings LLC.
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The Employee Retirement Income Security Act (ERISA), enacted in 1974 forbids a plan fiduciary from using plan assets for personal benefit.
Also, look for transactions like loans to your employer, corporate offices or plan trustees. These types of transactions shouldn't happen in a
401(k), according to GoBankingRates.
It wouldn't hurt to research your employer's solvency. You can also request a copy of your employer's auditor's report -- Form 5500 -- if the 401(k) has more than 100 participants.
An employer can also help protect employees. Qualified plans require a type of insurance called a fidelity bond, which must be bought from an insurer approved by the Dept. of the Treasury. Bonds must be at least 10 percent of the plan's assets with a $1,000 minimum and a $500,000 maximum. Wealth manager Matthew Illian recommends that employers who offer a 401(k) plan buy a multi-year bond that allows for yearly increases,
according to a blog post on Credit.com
The bottom line is to act fast if you feel there is fraud going on with your 401(k) plan. Contact your employer first, but get the Labor Department involved should your employer be slow to respond.
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