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401(k) Scams & Risks: What to Watch for, Fighting Back – Investopedia

It shouldn’t have to be your responsibility to avoid getting scammed out of your 401(k) plan contributions. Unfortunately, there are selfish, entitled, and desperate people in the world whose dysfunctional moral compass tells them that it’s OK to steal others’ money.
Here’s what to look out for so you can reduce your chances of being fleeced and losing the money that’s key to your ability to retire.
In fiscal year 2021, the Employee Benefits Security Administration (EBSA) indicted 16 plan officials, corporate officers, and plan service providers in criminal cases related to plans funded in whole or in part by employee contributions withheld from wages. These are just the cases that the government was aware of and acted on. The actual scope of criminal behavior in defined contribution plans, such as 401(k)s and 403(b)s, is almost certainly larger.
Check your pay stubs against your retirement plan activity. Keep an eye out for missing contributions in these categories:
In May 2022, a chief executive officer (CEO) pleaded guilty to embezzling just under $125,000 from his employees’ retirement funds over 10 months in 2015. He withheld employees’ 401(k) contributions from their paychecks but never remitted those contributions to the plan.
“Fraud caused by employers does happen, but fraud is far more likely to occur by an outside source,” says Gigi Verrey, ChFC, CLU, and vice president of wealth management at GCG Financial. “Cyber criminals are stealing funds from retirement accounts by gaining unauthorized online access. These criminals target 401(k) accounts because the payoff is bigger than a typical checking account.”
Protecting yourself against all forms of hacking isn’t possible, but you can take steps to make your account more secure.
“Scammers depend on investors’ lack of knowledge as it relates to their 401(k) plan,” says Tilisha Conley, retirement plan manager of G&A Partners, a national professional employer organization. “The more workers know about their 401(k), the better off they are in helping to prevent fraud and scam attempts.”
Trusted financial professionals have bilked workers out of their retirement savings. In one case, a man and his son operated as an established tax business to gain clients’ trust, then emptied their clients’ bank and 401(k) accounts to purchase a Maserati, a Land Rover, luxury homes, and hotel stays, according to the U.S. Department of Justice.
The duo promised their clients yearly returns of up to 10%—higher than long-term annualized average stock market returns, but perhaps not so unrealistic as to raise investors’ suspicions. A jury found the father guilty of conspiracy to commit wire fraud, wire fraud, money laundering, and aiding and abetting in April 2022.
Are cryptocurrencies the way of the future or more like a bunch of Ponzi schemes? It depends on whom you ask—and on the cryptocurrency under discussion—but financially conservative folks caution against funding your retirement by relying on a new, high-risk asset class that’s not backed by anything tangible. These currencies have both risen and fallen very fast, creating the risk of losing everything when you turn your dollars into crypto.
Some brokerage firms may allow retirement plan sponsors to offer cryptocurrency as an investment option within a 401(k). For example, Fidelity has introduced a bitcoin offering.
Retirement plan fiduciaries must select a prudent menu of investment options for participants. Fiduciaries can be held personally liable for plan losses resulting from a breach of their duty to provide the highest standard of professional care.
The U.S. Department of Labor “cautions plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants,” according to a March 2022 memo. The department also states that cryptocurrencies and products whose value is tied to cryptocurrencies “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.”
Cryptocurrencies are speculative and volatile, and many people don’t understand how they work. They’re more vulnerable to loss and theft than traditional investments, their valuation is questionable, and they’re less well regulated than other types of investments. The EBSA plans to investigate plans and question fiduciaries that offer cryptocurrencies within 401(k)s.

“The administration and management of a retirement plan rests with the employer, but the employee bears responsibility for monitoring their account for consistency and accuracy,” says Mary Fedorak, retirement plan advisor at Savant Retirement Plan Services. Here are three ways that you can protect yourself, in addition to the ones discussed above.
Poor or inconsistent communication from an employer or any third party involved with the plan is one of the warning signs that employees should monitor, Fedorak says. Plan participants should receive prompt and consistent communication about contributions, withdrawals, and any other activity, all of which should be reflected on regular account statements.
Frequent changes to the investment lineup and high investment management fees should also raise suspicion. And if your company is acquired, be alert to the possibility of errors when your existing plan is merged with the acquiring company’s plan.
In addition, Verrey recommends checking your account statements for investments that you didn’t authorize. If you find anything suspicious, contact your 401(k) provider using the information on its website.
You should immediately contact either the Employee Benefits Security Administration (EBSA) or the Internal Revenue Service (IRS). The EBSA enforces the Employee Retirement Income Security Act (ERISA), while the IRS audits and tests plans to make sure that their accounting and administration are being handled correctly.
“With all of the regulations and regulators involved with retirement plans, can employees rest assured their retirement assets are safe and secure? The answer is unequivocally no,” says Patricia L. Hutchinson, MBA, director of retirement plan services at Savant Retirement Plan Services. “Employer malfeasance (intentional criminal conduct), the lack of fiduciary responsibility (standard of care), or a combination of the two have resulted in significant losses for employees over time,” she continues. In other words, employees must be alert to the possibility of scams and take steps to avoid being cheated out of their savings.
Missing contributions, unauthorized distributions, dubious cryptocurrency investments, and investment fraud are some of the top ways that employees may get scammed out of their 401(k) savings. While federal laws and oversight programs regulate and oversee how employers and plan sponsors handle workers’ contributions and accounts, employees unfortunately need to be aware of the ways in which unscrupulous or incompetent people might part them from their money. Ideally, you’ll never have a problem, but if you do, catching it early could limit the damage.

U.S. Department of Labor. “EBSA Restores Over $2.4 Billion to Employee Benefit Plans, Participants and Beneficiaries,” Page 2.
U.S. Department of Justice. “Shasta County-Based ‘Joined Inc.’ CEO Pleads Guilty in Retirement Fund Embezzlement Scheme.”
U.S. Department of Justice. “Austin-Area Man Guilty of Federal Fraud and Money Laundering Violations.”
The Washington Post. “Six Signs Crypto Investment Is a Classic Ponzi Scheme.”
Fidelity. “Fidelity Investments Advances Leading Position as Digital Assets Provider with Launch of Industry’s First-of-Its-Kind Bitcoin Offering for 401(k) Core Investment Lineup.”
Cornell Law School, Legal Information Institute. “Fiduciary Duty.”
U.S. Department of Labor. “Compliance Assistance Release No. 2022-01: 401(k) Plan Investments in ‘Cryptocurrencies’.”
U.S. Department of Labor. “Ask EBSA.”
Internal Revenue Service. “Tax Scams — How to Report Them.”
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Finance specialist with courses ranging from corporate finance, perfonal finance and startup finance. Msc. Acturail Science, Bsc. Finance, COP Insurance and phD. Business Advministration -FInance(ongoing)

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