You owe it to yourself to keep safe from 401k fraud. If you’ve been saving money for retirement with your employer’s 401k plan, you might ask yourself if it will be there when you want to make withdrawals. No…I’m not talking about investment returns. I’m talking about investment safety from 401k and employer fraud.
I received a call from a friend, Gerry, earlier today with a sad tale. She had been trying to get her money from a former employer rolled over to other IRA custodians for the last year without any luck.
Gerry’s former employer, a small business, told her the retirement investments were illiquid and impossible to transfer. She received confusing investment statements and no answers to her questions. She was angry. She felt helpless and taken advantage of. She asked me what to do.
Request It in Writing
While this is not an area I am expert in, I suggested that Gerry start by making a formal written request to do a tax-free rollover of 401k funds held by her former employer. Up until this time, she had only communicated with her former employer via the phone and e-mail. I suggested that she send a formal registered letter asking for 401k rollover paperwork.
Normally, all you have to do is call your employer and they send these documents, but it was clear that Gerry’s employer wasn’t playing ball. The only reason I could think of for this company playing games was that there was some funny business going on with the plan itself.
I told Gerry to assume the worst and, despite best efforts, to not expect to ever see the money again. That might mean she’ll have to find other ways to generate income during retirement. She had limited alternatives, but I also told her to contact the local Department of Labor office if the company did not comply with her request.
Know Your Legal Rights and Protections
I explained that ERISA stands for the Employee Retirement Income Security Act. It’s a federal law that sets the standards for retirement plans offered by non-government employers. These rules establish when your employer must admit you to the plan, among other requirements. ERISA doesn’t mean your employer has to offer a retirement plan. But if they offer a plan, the employer must adhere to the regulations.
But ERISA goes further. It requires the employer to provide participants with information about the plan on a timely basis. It also sets the standards for fiduciaries of the plan. According to ERISA, a fiduciary is anyone who controls or has authority over plan assets or who gives investment advice to participants. The important point here is that if the fiduciary doesn’t act responsibly, they can be forced to restore investment losses. Plan participants can sue if the people in control don’t live up to their fiduciary responsibilities.
As I mentioned, the Labor Department enforces ERISA regulations. Specifically, the Pension and Welfare Benefits Administration is the muscle behind ERISA enforcement. That’s the organization Gerry needs to contact. Clearly, her former employer isn’t acting within the guidelines of a fiduciary, and the DOL needs to know about it.
Or course, if Gerry wants to go further, she can. After all, the IRS has teeth and they’re ready to bite anyone who misbehaves after establishing a “tax-qualified” pension plan such as a 401k.
I’m sure if Gerry plays her cards right and threatens her former employer, they’ll open up. And if nothing else, they’ll start providing her with the information she needs.
Having said all this, the 401k is still one of the best retirement investments you can make. You just have to stay on top of it.
The bottom line is, once your former employer starts playing games, you have to act quickly. And rather than wait for this kind of thing to happen, why not do the rollover as soon as you separate from service?
What other advice would you give Gerry?
I recently noticed my statement for my 401k is missing fractions of shares for the last two quarters. When I subtract the shares sold to pay maintenance fees and the shares sold for my distribution from the beginning share balance, the results are short by approximately .02370 and .02567. Why is the statement not showing where these fractions went? I am concerned. Thanks for your knowledge.
Neal Frankle, CFP ® says
What does the admin say?
Do you happen to know the legal structure of an employee sponsored 401K plan? I am with a large company, and I have been told by my company’s fund manager, that my company is the owner of the securities in my 401k, despite me being 100% vested. I am searching for definitive information regarding the legal roles of the people involved in administering the 401k. Shouldn’t I be the legal owner of the securities in the fund? Shouldn’t my employer be a trustee with fiduciary responsibility? I have been informed that I am a “participant”. I have no idea what that is and what the legal grounds are for a participant. Is that the same as a beneficiary? Shouldn’t I be listed as the title owner of my own 401k funds? Would you please provide me with specific information with regard to the proper roles and legal standing of those involved in administering employer sponsowrd 401k plans? Thanks.
Neal Frankle, CFP ® says
You are probably referring to a deferred compensation plan which does belong to the employer. A 401k belongs to you. Thanks!