HERE ARE A FEW REAL-LIFE EXAMPLES OF FRAUD ON 401(K) PLANS:
Comcast Employee Charged with Stealing from Company 401(k) Accounts
(Philadelphia Business Journal 02.02.2015)
Trucking Company President Accused of Stealing Employee Funds
(Gant Daily 12.18.2014)
RISKS: WHAT YOUR EMPLOYER WILL NOT TELL YOU:
A defined contribution plan administrator should:
- Create an environment and process where employee participation and making investment decisions are as easy as possible.
- Ensuring the plan’s costs, fees, or other expenditures are transparent, communicated, and clear.
- Managing investment options that balance employee opportunities for greater savings or investment growth against various risk tolerances and associated costs.
- Educating employees by providing tools and resources to make decisions.
- Follow-through timely on deductions and investment in the employee’s direction to ensure no lost investment opportunity.
- Ensure company contributions (if applicable) are applied at the same time as the employee investment to provide the employee with the most buying power and ultimately savings/investment opportunity.
- However whenever money is involved, in this case your contributions, the opportunity and risk of fraud by deception or incompetence can be committed.
401(K), 403(B), OR 457
You may know what these terms are, but here is additional information you may want to know about these popular “Defined Benefit Plans”.
WHAT DOES “DEFINED CONTRIBUTION BENEFIT PLAN” MEAN?
A plan where employees make contributions from their paycheck, before any taxes are taken out, and invest them in various investment options as defined by the plan. Most employers encourage savings by matching the employee’s contribution at a certain level. These are the 401(k), 403(b), and 457 plans.
WHAT IS THE DIFFERENCE BETWEEN A 401(K), 403(B), AND 457 PLAN?
A 401(k) plan is a mandatory retirement savings plan established by a for profit employer. Employees make pre-tax contributions through payroll deductions.
403(b) & 457 plans are voluntary programs offered by non-profit employers such as public schools, and other tax-exempt entities. Operated exactly like a 401 (k). However some offer both a 403(b) and 457 plan; whereas there are separate IRS limits for each and therefore offers a double deferral tax option.
However there are distribution differences. 401k & 403(b) plan distributions can be taken at 59 ½ without the 10% IRS Tax Penalty. With a 457, you must wait until 70 ½ to avoid the 10% Penalty.
WHO MANAGES OR ADMINISTERS BY 401(K), 403(B), AND 457 PLANS?
There are 2 types, in-house and outsourced. In-house is usually handled by the Human Resources Dept. The outsourced could be firms such as Fidelity or Vanguard, or a local Financial Advisor Firm.