5 Warning Signs of Mistreatment in Your 401(k) and What to Do About It

In 2021, 401(k) plans held an estimated $6.9 trillion in assets, including employer-sponsored retirement plans (both defined benefit and defined contribution plans with private- and public-sector employers), individual retirement accounts (IRAs) and annuities. In 2011, 401(k) assets added up to $3.1 trillion.

However, what happens if your money isn't going where it's supposed to go? Sometimes employers misuse or mismanage 401(k)s.

In 2020, through the Employee Retirement Income Security Act (ERISA), the Employee Benefits Security Administration's (EBSA) benefits advisors closed more than 171,000 inquiries and recovered $456.3 million in benefits on behalf of workers and their families through individual complaints. 

You may not even know that issues exist within your 401(k), so that's why the Department of Labor (DOL) issues warning signs to help employees discover whether their 401(k) contributions have been misused. Take a look at the following warning signs from the DOL.

Warning Sign 1: You're not getting statements.

As a plan participant, the DOL requires that 401(k) plan providers send quarterly statements to retirement savers no later than 45 days after the end of the quarter.

You can also access statements online. If you aren't getting statements, check your online account mailbox.

In addition, if your 401(k) or individual account statement is consistently late or comes at irregular intervals, it might be a sign of misuse.

Warning Sign 2: Your account balance doesn't make sense to you.

If you find that your contribution amounts don't match the amounts deducted from your paychecks (they seem erratic) or your account balance seems off, you may need to investigate.  

By law, employers generally must deposit your 401(k) contribution in your account within 15 business days after the end of the month in which they withhold your contribution. For companies that have fewer than 100 participants, they must make this happen within seven business days. 

A clerical error could cause delays, but having a third party investigate may help clear up these types of issues. On the other hand, it could mask larger issues within the plan. 

Warning Sign 3: You didn't choose the investments showing up in your plan.

Does your statement reflect incorrect investments? Sometimes mistakes occur when you sign up for a 401(k) plan and that results in your money not funneling toward the correct funds. Make sure your contributions go toward the funds you've selected, along with the correct percentages allocated to each investment. 

You can address the changes that should be made in your account by asking your plan provider to make those changes. However, if these issues persist, you may want to go deeper to discover other problems.  

Warning Sign 4: Your company keeps switching investment managers or plan consultants. 

Has your employer switched investment managers or plan consultants several times — even within a year? It could mean evidence of mismanagement, but not necessarily. Know about your plan manager's track record and whether it signals anything amiss. It should be a red flag to you if the plan managers quit frequently or without explanation. 

Warning Sign 5: You know your company has financial trouble.

Now, this fact alone won't always point directly to issues within your plan. However, it's always, always a good idea to pay attention to your employer's financial health. Employers having trouble paying bills may illegally use retirement plans to float them during tough times. Smaller companies may more often face this compared to larger companies, especially those that lack the internal controls of outside plan trustees and managers. 

Note that if your employer goes bankrupt, remember that your 401(k) account is not held by your employer. All 401(k) money must be held in trust or in an insurance contract, separate from the employer’s business assets by federal law. 

However, this occurs only as long as your 401(k) contributions go into your plan from your employer. If your employer didn’t deposit your contribution before declaring bankruptcy, you could lose your contribution from that month. 

What to Do if You Suspect Trouble

Take these steps if you believe something is wrong with your 401(k).

Step 1: Analyze the problem. 

Do you think something's up? Have you seen persistent issues with your 401(k)? Take copious notes, screenshots of your account woes and identify the issues as you see them so you can use them as proof.

Step 2: Contact your plan administrator. 

Most issues may clear up by simply contacting your company’s plan administrator. You may not have to go any higher than that because most problems can be attributed to a simple clerical error.

Step 3: Contact EBSA.

Unfortunately, extreme cases of employer misuse exist. Employers may even go as far as using your money for its own needs. If you suspect this is the case, you can call EBSA's toll-free number 1-866-444-EBSA (3272) or visit askebsa.dol.gov to report possible misuse.

More specifically, you'll speak to an EBSA employee with expertise in ERISA and employee benefits. You can communicate directly with an EBSA benefits advisor, who will review and discuss your issue with you. When appropriate, EBSA can contact pension or other retirement plans and attempt to address any specific issues through voluntary compliance.

Note that if your company gets bought out or merges with another company, your 401(k) plan may change. You may have to invest your money in an entirely new plan. Make sure you receive a new summary plan description and understand any changes that your plan will incur, including your investment options. If your employer terminates the plan, you should strongly consider rolling your money directly over to a rollover IRA.

Is Mistreatment Happening to You?

It doesn't happen often, but when the numbers don't add up or if you face a sudden drop in your balance (inconsistent with market performance, that is) your account may be mishandled. Just to be on the safe side, contact EBSA so you can breathe more easily.