When you contribute to a 401(k), the funds you deposit into the account immediately vest and remain with you, even if you leave your job the next day. While companies may have different rules about when you keep employer contributions, all funds you deposit into your account are 100% your own.
But what happens if you make a donation and then discover a few days later that some of your funds have disappeared? Is this a sign of fraud or something you should be worried about?
Let’s look at a hypothetical example. Assume that John deposits $200 into his 401(k) account every pay period. The money will be taken out of his check and automatically invested in a target-date fund based on his chosen retirement date.
But one day, John logged into his account, saw that the contribution had been made and purchased the fund, then saw a few days later that shares in the fund were sold and the funds were withdrawn – but the money he contributed was not put back into his account.
John is concerned that his employer has not told him anything about this. Is his employer responsible for the missing money? Is this a sign of fraud?
First things first. It’s important to understand that the Employee Retirement Income Security Act (ERISA) has strict regulations on how a 401(k) plan is administered. ERISA sets minimum standards that cover most private sector retirement plans.
Under ERISA, employers have the highest legal responsibility to workers in administering their 401(k)s.
These plans often allow for payroll deductions from workers’ paychecks, so employees can make automatic contributions to their accounts. When doing so, the employer must promptly deposit the contribution from the employee’s salary – within 15 working days of the month following the payday. However, if they can reasonably deposit funds faster, they must do so.
Employers are not allowed to misuse 401(k) funds, and companies must take steps to protect your funds, including from cyberattacks. Your employer cannot withdraw funds from your 401(k) plan and doing so may violate ERISA.
While employers are not allowed to take funds from your 401(k) plan, that doesn’t mean it can’t happen illegally. Therefore, the Department of Labor has identified some key red flags you should be aware of, including (1):
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Late or irregularly filed 401(k) statements
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Balance is inaccurate
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Your contribution was not delivered in a timely manner
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Your 401(k) balance drops and cannot be explained by investment fluctuations
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401(k) Statement Does Not Show Your Contributions
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The investments listed on your statement are different from those authorized by you
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Former employees have difficulty paying benefits correctly and on time
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Unusual transactions, such as loans to corporations, 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’s an explanation.
If your employer No If you provide a satisfactory explanation of what happened, you should file a complaint with ERISA and possibly contact an attorney who can help you.
Since John spotted some of these signs, including funds disappearing and investments being sold without explanation, he needed to take action – these were major red flags.
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In the best-case scenario, John would find that his money disappeared from his 401(k) plan because of a simple mistake. Although companies have strict obligations when it comes to managing 401(k) accounts, mistakes can still happen. These may include:
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Wrong donation amount
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Unexpected double contribution
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Employer match not calculated correctly
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Allowing employees to unexpectedly pay more than the IRS allows
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Transferring employee contributions to the wrong 401(k) account
If this occurs, the company may withdraw funds to correct the error. This is not illegal or a sign of fraud, but when such corrections are needed, the company should be more than willing to let you know what’s going on.
If your 401(k) contributions disappear like John’s, it’s important to document everything, including keeping account statements or screenshots of online accounts, asking your employer for a written explanation (and keeping a copy), and keeping all communications with the company. He may also want to verify their own accounts with other trusted colleagues.
John and others who suspect an error should contact their Human Resources department and/or program administrator immediately. They should detail the problem, explain concerns, and request prompt responses, with regular follow-up when needed.
If companies do not provide satisfactory answers, such as providing proof of excessive contributions or contributions to the wrong plan, then they should consider seeking legal help and contacting the Department of Labor regarding an Employee Retirement Income Security Act violation.
Employees are protected from retaliation for reporting 401(k) fraud, so don’t hesitate to address the issue because you are concerned that your job will be affected.
Unfortunately, there’s not much employees can do to prevent the company from making mistakes.
For employees like John, the key is to review their statements and accounts regularly to make sure errors are corrected and aren’t costing them money, and to make sure they’re not a symptom of a larger problem.
In addition to checking your account regularly, you should also consider:
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Know your donation amount and when to deposit it
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If you have any concerns, please ask a question
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If you think you’ve been scammed, seek legal help
Your retirement security depends on the money in your 401(k), so take care to monitor and protect it.
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U.S. Department of Labor(1).
This article provides information only and should not be considered advice. It is provided without any warranty of any kind.
