10 Signs Your Employer Is Illegally Taking Money From Your 401(k)

Do you have an inkling that something unethical is happening with your 401(k) balance? You can corroborate your suspicions by comparing them against a list of unprincipled employer behaviors published by the U.S. Department of Labor. If you're the victim of money mismanagement, you're not alone, and your boss isn't the only bad actor out there. MSN published a Wall Street Journal article that stated that as of late 2025, the Labor Department had used civil suits successfully over the last decade to go after nearly $24 million in unremitted 401(k) money. Another $14 million was recovered through criminal cases.

You can catch bad behavior early if you closely monitor your retirement plan. Unscrupulous employers count on most people ignoring their 401(k) accounts once they automate their contributions. This allows companies to temporarily redirect your contributions from your retirement account to their expenses. For example, the employer may be in desperate need of cash to pay vendors and bankers. The plan may be to replace the money months later without anyone noticing its absence.

Some employers, after being caught by their employees, mend their ways and begin adhering to federal guidelines set forth in the Employee Retirement Income Security Act of 1974 (ERISA). But not all. That's when the authorities step in. Do you need to talk with your employer, or maybe even with someone in the Department of Labor? The following 10 signs of possibly illegal activity can help you to decide.

Delayed statements can be a sign that the employer needs extra time to account for submitted funds that have been misappropriated. For example, consider the federal government's case against a Maryland company that, from 2016 to 2021, regularly withdrew money from the wages of its employees that were earmarked for their retirement plan. However, the money didn't make it to their 401(k). Instead, the company kept the money in its general account. Additionally, the company failed to match the contributions of its employees. So, the retirement plans of the workers were missing both employee contributions and employer matching funds. The government classified the losses to employees as significant.

Such misbehavior seldom begins with the establishment of the company or the plan, but is initiated later. In the case of the Maryland company, it was established in 2007, and it set up the retirement plan in 2011. It would be another five years before the illegal behavior surfaced. During the years the company mishandled the retirement plan, the money that was redirected to the company's general account helped the firm, providing it with additional operating capital. 

In court documents, the government stated that a conscientious fiduciary would have promptly separated employee contributions from the company's account and ensured that the company didn't misuse retirement funds. Illegal behavior can occur with any firm, no matter its field. The company in question specialized in helping government clients locate computer and electronic evidence for court cases.

Inaccurate balances can point to embezzlement. But there are two kinds of inaccurate balances. Typically, people think of a balance that reflects less than the true amount. However, an inaccurate balance could also be one that states more than is in the account. This latter example was the case for victims of a Pittsburgh company. The company was a third-party professional retirement plan administrative firm, headed by company president Paul Palguta. The president and his company diverted $5.5 million from various retirement plans to their own accounts. To hide their thievery, they sent employees statements with inaccurate balances, reflecting what should have been their retirement savings but really wasn't.

If retirement plan participants needed to withdraw money, there might not be enough on hand to accommodate the requests. So, the defendants would then transfer money from another retirement trust under their supervision to cover the deficit. The defendants had at least 240 retirement plans at their disposal. Juggling money like that allowed the defendants to keep the embezzlement scheme running from October 2022 to January 2024.

But doing so also strengthened the government's case against them. Providing inaccurate statements to employees also meant that they would have to falsify the records they submitted to the Department of Labor in order for the two to match. Not only did the government seek to force the defendants to replace the missing funds, but it also requested that the defendants be stripped of their ability to administer retirement plans.

You would expect a payroll company to set the standard when it comes to diligently processing financial transactions, especially when the figures could influence someone's decision to retire early or late. Sadly, that was not the situation with Leach-Baird. The government sued the company for not moving employee contributions and the company's matching funds to the designated 401(k) plan. Employees also couldn't get the company to roll over their money into other retirement plans or distribute to them any of their money. The federal government accuses Leach-Baird of engaging in this type of behavior for a decade, from 2014 to 2023. The scheme cost employees $192,511, not including the interest they stood to earn had the remittances occurred promptly.

According to the law, a company has until the 15th business day of the month following the month when the contribution was made to place the money in the appropriate retirement plan. This doesn't mean the company can wait that long every month. Businesses are supposed to move the money as soon as possible. Typically, even the largest companies put the money in their retirement plans within a few days of dispensing salary payments. If the number of retirement plan participants is under 100, the generally accepted time for a company to move money to the plan is seven days. So a firm that's routinely slow about remittances can still come under federal scrutiny even if it meets the maximum 15-business-day requirement.

Employers are restricted from withdrawing funds from the retirement plans of employees. Once employees make contributions to a 401(k), the money remains their property, even if they eventually leave the company to work elsewhere. It's a serious violation of federal law for employers to tamper with employee contributions without having legitimate reasons and without informing the affected employees.

A legally permissible reason to alter a 401(k) balance is to correct an error. For example, confusing two or more employees and remitting their contributions to the wrong accounts. If this happens, all parties involved should receive notification of the errors and the steps that are being taken to correct the matter. However, if a contribution was correct under the circumstances that existed at the time, it cannot be altered later. For instance, suppose a company adopts a different accounting system for determining salaries and retirement plan contributions. The firm can't retroactively adjust old 401(k) contributions. The previous contribution calculations were performed legally and in good faith. Adjusting them at a much later date would violate federal law.

But you may wonder what if your employer says the system accidentally let you to contribute more than is legally allowed. In such cases, you should receive a refund. An employer would not get to keep the excess contribution. Also, your employer would not have oversight of the correction. The matter would be handled through the Internal Revenue Service.

Employers are liable to federal prosecution if contributions aren't remitted within the legally mandated time period. Employers may make excuses for late contributions, but few reasons have legal merit. They are under an obligation to transfer funds contributed by employees to their 401(k) accounts within a reasonable number of business days following payroll dispensation. A well-run organization might remit contributions within two or three business days of paying wages. The Department of Labor routinely sues companies that disregard the law and delay their remittances for a month and a half or longer.

A typical legal case is the one the Department of Labor brought against the fiduciaries of the Chicago Metropolitan Obstetricians and Gynecologists, Ltd. 401(k) plan. They failed in their responsibility to move employee contributions to their 401(k) plans. But they also neglected to gather the plan's obligatory employer contributions. The loss to the employees was estimated at more than $140,000. The government's suit requested that employees be fully compensated. If the remittances had been timely, the accounts could have gained interest, laying the groundwork for a better retirement lifestyle.

The government's case went even further. It also asked for the fiduciaries to be replaced by an independent party and barred from ever serving again in that capacity. Delayed remittances are more likely when the ones overseeing the retirement plan have conflicting interests. In this case, the administrators were the company itself and its leading physician.

You can personally authorize a certain 401(k) investment by deliberately choosing a specific option. If your statement shows a different investment instrument than the one you selected, there might be fraud involved. However, there's a more common type of switch that takes place. It begins before you even make a selection. The administrative person or body overseeing the 401(k) plan has the legal obligation to make available only investment options that are in the best interest of the employees. Often these are inexpensive investments that don't come with outrageous maintenance fees. If a company forces expensive investment options onto employees then charges them for excessive bookkeeping fees, the Department of Labor would likely investigate to determine whether the cause is incompetence or fraud.

The San Francisco company Genentech found itself embroiled in a lawsuit after a former employee initiated a class-action lawsuit. According to The Sun, Genentech was accused of dereliction of duty by charging exorbitant recordkeeping fees. The company was also accused of selecting expensive investments that underperformed, neglecting more prudent options. Genentech and the plaintiffs reached a settlement agreement of $250,000.

When fiduciaries select expensive investments, their actions can become the object of suspicion. Unscrupulous plan administrators may have personal interest in the selections they make on behalf of employees. If they benefit from the investments they force on the plan's participants, they make themselves liable for federal prosecution, according to attorney Aaron Hall.

Failure to honor retirement benefit plans can be an indication that the money is unavailable due to mismanagement. Two employees of a Connecticut company discovered this hard truth when they tried to enjoy pension benefits to which they were entitled. They discovered that there wasn't enough money in the Thomas P. Puccio retirement plan to cover their requests. The subsequent investigation revealed that the pension plan's trustee, Kathryn Puccio, and her late husband, Thomas Puccio, had illegally withdrawn money from employee retirement investment accounts for their own use. The court ordered Kathryn Puccio to repay the two former employees $484,321. The court also forbade the defendant from ever again performing the duties of an ERISA fiduciary.

Former employees may also struggle to access their plan benefits if fiduciaries abandon their responsibilities or the plan fails to appoint a replacement administrator. The California company Gutters Perfect, Inc. went out of business in 2013. Six years later, the only person with executive authority died. He had not made the necessary legal provision for a successor. He was not only the owner but also the firm's single trustee and officer. The plan was left without anyone to oversee it, leaving former employees without a way to access their contributions. The Labor Department stepped in to file a motion that would appoint an independent fiduciary to administer the distribution of the plan's money to its participants and then close the plan.

It's illegal for employee contributions to be used for anything other than the intended purpose. But some business owners begin to view the retirement plan as an alternative source of capital. One such owner was Dr. Mark A. Lyerly. He owned Neurosurgical Solutions, P.A. Together, they functioned as administrators of a retirement fund simply named the Neurosurgical Solutions, P.A. Employees' 401(k) Profit Sharing Plan. So there was no one to veto the idea of loaning the doctor more than half a million dollars from the plan. However, the law plainly states that a retirement fund can't be used to financially benefit the company or its officials.

There were other loans, too. One loan was an indirect one to an employee to pay for an automobile. Another loan was executed without any collateral. When the party failed to repay the loan, Dr. Lyerly and his company chose not to initiate any sort of collection procedure. A lawsuit brought by the Department of Labor prompted the doctor to make restitution to the retirement plan. He also agreed to terminate the plan and never again perform as an ERISA fiduciary.

Another company, JWK Corporation, was also guilty of misusing loans but in a different manner. According to Plansponsor, when 401(k) participants with legitimate loans made repayments, the CEO and director of operations failed to return the money to the fund. The court ordered them to restore $103,098. 

Shuffling plan managers may point to bad management, where fraud or incompetence can lead to missing money. Planadvisor documents that when a Florida automotive group changed recordkeepers in late 2022, confusion ensued, money went missing, and a lawsuit resulted. An employee accused Rick Case Enterprises, Inc. of failure to properly oversee the switch from Empower Retirement to Principal Financial Group. During the change, the accounts were inaccessible for nine days longer than employees were told to expect. When the plaintiff regained access after the changeover was completed in early 2023, his balance and apparently that of others were down by 9%. 

The employee's full vestiture in a value fund known to protect an investor's principal makes the 9% drop even more difficult to explain. The missing investments affect a large number of people and represent a sizable amount of money. The automotive group's last public filing in 2024 revealed that the retirement plan had around 1,400 participants and more than $35 million in assets.

According to the complaint, the company was supposed to ensure the money went into age-based target date funds (TDFs) where the portfolio adjusts automatically to better suit the participants' age and proximity to retirement. TDFs are standard components of a retirement fund and were the default choice for participants in the automotive group's 401(k) plan. However, participants discovered that their investments had been put into a group of mutual funds that didn't agree with the plan's stated purpose.

Information Technology Partners (ITP) was incorporated in 1992 and launched its 401(k) plan in 1998. But by 2023, it was already displaying unmistakable signs of a faltering business. As first reported by The Wall Street Journal and published on MSN, former employees reported that it was not uncommon for ITP to experience payroll shortages and push paychecks behind schedule. Also, the company was sued several times by creditors. It had defaulted on a $4 million loan and owed vendors for business equipment. To shore up its operation, ITP failed to remit some of its employees' retirement plan contributions. Companies are obligated to transfer employee contributions to their 401(k) accounts as soon as reasonably possible, meaning within a few days. But economically shaky businesses often keep the contributions in the company's general operating account to pay off loans and other expenses. Some firms experience only momentary difficulties and are capable of quickly replacing the money. Others force employees to rethink if they're financially ready to retire.

Former employee Amanda Otter calculates that ITP owes her $100,000. Her estimate includes the 401(k) contributions she made that ITP never remitted to her account, paychecks she never received, lost opportunities in the form of interest her retirement account should have earned, and compensation for her expenses. Otter made repeated inquiries about her account, but was told to be patient. She last spoke with the company president in February 2025. A month later, ITP went out of business.