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can my employer take my 401k money?
Posted by: lazydays
Date: June 15, 2009 03:43PM
My father-in-law told me that an employer can take an employees 401k money if they want to. I didn't believe this at all so I went googling to refute his claim. Unfortunately all I've found are articles that seem to say it can happen, but is illegal. Can anyone confirm just what an employer can do with 401k money? I'm shocked that this is possible.
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Re: can my employer take my 401k money?
Posted by: raz
Date: June 15, 2009 03:44PM
In the absence of fraud, your employer cannot take your 401(k) money.

(edited) On second thought, when I left my last employer, I was shocked to see how high the monthly 'maintenance' fees were, and quickly rolled it in with my Fidelity IRAs.

So, they *could* move the retirement plan to Fast Freddy's Money Laundromat and Kickback Vehicle. Then, you're screwed.



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Embarassing myself on the Internet since 1978.



Edited 1 time(s). Last edit at 06/15/2009 03:49PM by raz.
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Re: can my employer take my 401k money?
Posted by: GGD
Date: June 15, 2009 03:48PM
If your employer makes matching contributions to your 401k, there might be some strings attached. Sometimes there is a vesting period and if your employment ends before that vesting period is up (maybe 5 years), they can keep the matching contributions. But the actual payroll deduction contributions that you made are with your money and yours to keep.
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Re: can my employer take my 401k money?
Posted by: Racer X
Date: June 15, 2009 03:49PM
when they do, thats the kind of crap that spurs workplace shootings.
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Re: can my employer take my 401k money?
Posted by: rjmacs
Date: June 15, 2009 04:36PM
The can't take money that has already been deposited into an account bearing your name... They do not have legal access to that money - to get at it would require true fraud.

However, they can make deposits to your 401K account less frequently than you get paid, especially with 'employer match' funds. If your employer isn't making deposits as promised, it's a violation of your employment contract and can be considered theft, but it's not fraud per se because they haven't removed funds from your 401K account. Rather, it just never went in.

This means employees should keep tabs on their 401K accounts, and make sure that deposits are coming in regularly and on schedule. Note: this also happens with tax fraud - employers are required to send your tax withholdings to the government, and larger companies must automate this process. However, if your boss keeps your withholdings and doesn't pay the government, you can end up on the hook to Uncle Sam to repay those back taxes. Sure, you can sue your (ex-) boss and even encourage an investigation/prosecution, but.... do you really think you're going to get that money back?

If an employer is short on cash and hard up for credit, withholdings (tax or retirement) can be a tempting pile of cash for making payments, even when there's every intention to pay it back later... Make sure your money is going where it's supposed to go! Check your statements, and don't be afraid to ask if something looks wrong.


Edit: for typos.



rj
AKA
Vreemac, Moth of the Future




Edited 1 time(s). Last edit at 06/15/2009 04:38PM by rjmacs.
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Re: can my employer take my 401k money?
Posted by: lazydays
Date: June 15, 2009 04:42PM
I wrote to my 401k manager and indeed and employer can take your money at any time. It is a crime, but they can do it. Hard to believe isn't it? Here is his response, without any names, for your enjoyment.

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What you ask is kind of a tricky question. And probably has more to do with the "can" verses "may" terms.

Technically, monies from a retirement trust (all 401k plans must have a retirement trust) may only be used for the benefit of it's participants and their beneficiaries.
Therefore, an employer, or trustee, MAY NOT take an employees 401k money: It is illegal.
That is why it is important to review your account statements and to report any suspicious activity. Like Reagan said: Trust, but verify. smiling smiley

Can an employer take an employees 401k money? As in, does the employer have access? I would have to say yes, if the employer is the trustee. The trustee controls the money and is responsible for any disbursements. In the case of employers the size of your company or mine for that matter, the employer is usually also the trustee, and like Oz, is all-powerful.

However, the trustees fiduciary duty is to the beneficiaries of the trust, and should be taken seriously. Obviously, when people have access and control over large sums of money it is susceptible to human weakness such as fraud and theft. There have been cases over the years of trustees skimming or just outright absconding with participants money.
All plans are required to carry a fidelity bond for 10% of assets to cover those kinds of misdeeds.
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Re: can my employer take my 401k money?
Posted by: Will Collier
Date: June 15, 2009 05:04PM
Certainly not legally. That's your money, and an employer can't legally take it away any more than they can legally take money out of your bank account (that's one reason why 401k accounts are better than company pensions, where the company can underfund, or in fraudulent situations, actually steal from the kitty without you knowing about it until it's too late).

The manager's advice is good, though, you should always check all your financial statements: bank accounts, credit card bills, 401k statements, etc. for errors or fraud.
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Re: can my employer take my 401k money?
Posted by: lazydays
Date: June 15, 2009 05:25PM
Another clarification from the 401k manager.

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The bond is for 10%, not 100%.
I guess the lawmakers (who are usually the REAL crooks) thought that if the trustee wanted to steal the money or skim, then they would only take 10% or less; not more. Because, hey, in DC they only steal PART of our money.....not all of it.

Bottom line; if the employer disappears with ALL of the money, the insurance would only cover 10%. Generally speaking it would be difficult, but impossible, to do as most investment companies will only make checks payable to the plan participant (in self directed accounts) or to the plan itself.
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Re: can my employer take my 401k money?
Posted by: Paul F.
Date: June 15, 2009 05:56PM
As I understand it, which I will admit, is incompletely...
If the 401K is administered by your employer, they can technically access the funds.
I have read of employees, as part of salary bargaining agreements, making it a condition that any 401K be administered (apparently, "Trustee'd") by the employee ONLY, not the employer.

If you're really concerned, I would look into moving your 401K into a personally "owned" one, not a company 401K.



Paul F.
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A sword never kills anybody; it is a tool in the killer's hand. - Lucius Annaeus Seneca c. 5 BC - 65 AD
----
Good is the enemy of Excellent. Talent is not necessary for Excellence.
Persistence is necessary for Excellence. And Persistence is a Decision.

--

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--
Eureka, CA
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Re: can my employer take my 401k money?
Posted by: DRR
Date: June 15, 2009 10:22PM
Yes, they can. (are able.)

This is why when you leave a company with a 401(k), you roll it over IMMEDIATELY. Especially after a layoff. Because a layoff signals a company in financial trouble, and a giant pot of employee money can be tempting.

IRA's are different - Simple, SEP, Roth, etc. They are in your name and under your administration and the employer cannot, fraud or not, take it.
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