Reverse 401(k) Theft: What to Do If Your Boss Steals from You


You may not have heard much about 401(k) theft, but it happens–not the kind where employees take money from their own accounts illegally, either. This is a different type of theft–one that results in an employer stealing money from your retirement plan.

Many people believe their employer has their best interests at heart, but in a cash-strapped economy, everyone is trying to get their hands on free money and people can become desperate. If you don’t want to lose the funds you’ve worked for years to save, learn about this type of theftand the 401(k) protection that’s available to keep it from happening to you.

Cases of Reverse 401(k) Theft

The occurrence of companies stealing from employer-sponsored 401(k) accounts is not as uncommon as you may think. According to a 2009 MSN Money article, CEOs routinely steal money from their employees’ accounts. Some even keep 10 percent or more of profits for themselves instead of using it to boost share prices of the stocks their employees hold.

Reverse 401(k) theft occurs on many levels, from the small business that dips into employees’ accounts to major conglomerates outright robbing its workers of every dollar they worked hard to save.

A number of cases of reverse 401(k) theft have come to light in recent years. Here are just a few:

  • LTS: Kim Ghi Martin, the former CEO of Leading Technology Services Corp. (LTS) was sentenced to prison and ordered to repay approximately $57,000 in restitution to plan participants after stealing from their accounts.
  • Explore General: In another lawsuit, the Labor Department alleged that Explore General and its officers failed to forward more than $70,000 in employee contributions and collected more than $100,000 owed to the company’s 401(k) fund. The owners co-mingled contributions with general assets and used the money to pay general operating expenses for the company.
  • Enron: Remember just how much damage Enron caused? After the scandal came to light, the CEOs took millions of dollars for themselves, filed for bankruptcy and left tens of thousands of employees jobless with drained 401(k) accounts and tiny severance packages.
  • 24 lawsuits: On Nov. 15, federal officials filed 24 lawsuits in a crack-down on employers from Kentucky to California that robbed worker retirement accounts. Similar to Enron, these bankrupt and defunct companies allegedly raided their employee’s retirement accounts before going under.

Unfortunately, having an employer steal your money is so common that it’s up to you to protect yourself from this type of fraud. By learning the warning signs of theft, you could lower the odds of becoming a victim.

Warning Signs That Your Employer Could Be Stealing Your 401(k)

While it’s not always easy to know if your employer is stealing money from your 401(k), the U.S. Department of Labor has issued 10 warning signs that your contributions are being misused:

  1. Late statement: If you’re 401(k) or IRA statement is consistently late or comes in irregular intervals, this is a red flag.
  2. Inaccurate balance: If you’re balance does not appear to be accurate, this is a cause for concern.
  3. Failed contribution transmission: Take notice if your employer fails to transmit your contribution to your plan on a timely basis.
  4. Drop in balance: A significant drop in your account balance is a sign that your boss could be stealing.
  5. No paycheck contributions: If you don’t see contributions being made from your paycheck, you may want to start asking questions.
  6. Unauthorized investments: You may notice investments listed on your statement that have not been authorized by you.
  7. Issues for former employees: Take notice if former employees have trouble getting their benefits paid on time or in the correct amounts.
  8. Unusual transactions: Look for transactions like loans to your employer, corporate offices or plan trustees. These types of transactions should not occur from your account.
  9. Unexplained changes: If you notice frequent or unexplained changes in investment managers or consultants, some shady dealings may be occurring behind the scenes.
  10. Employer financial challenges: An employer with recent financial difficulties could resort to strange things to make ends meet.

If you have a feeling that money from your account could be in jeopardy, it’s important to take the necessary steps to keep it safe.

Keeping Your 401(k) Account Safe

While your 401(k) investment may be partially tied to your employer because of contribution matches to your account, the fact of the matter is that the account and any money you contribute to it is 100 percent yours.

So how can you keep your hands on what rightfully belongs to you?

  • Monitor your account: The Labor Department recommends you monitor your account on a regular basis to make sure it looks accurate. You could do this online, via an 800 number or by checking your quarterly statement.
  • Check your paycheck: Check the total withheld from your paycheck for a quarter or year against the total of the corresponding account statement.
  • Take action on late deposits: If your contribution is not added to your account within the agreed upon time period, call the Labor Department immediately.
  • Take a close look at your employer: Look for news reports on your employer to find out if it’s having cash-flow or other financial problems. If you find out this is true, you may want to watch your account even closer.
  • View the Form 5500: You could also ask for a copy of your employer’s auditor’s report (Form 5500) if it has more than 100 plan participants.

Discrepancies could first be brought to your employer’s attention, but if your employer refuses to act, it’s important to get the Labor Department involved immediately. Your ultimate goal is to ensure your 401(k) is not being stolen from and if it is that you be paid back. Luckily, there are ways to protect your account, so take steps now to ensure that you do just that.