Compliance

Plan Sponsor Admits to Stealing from 401(k)

Statements from the retirement plan provider notified participants of their missing contributions.

By Rebecca Moore editors@strategic-i.com | July 20, 2017

The owner of PCI, a commercial janitorial company that contracted with area school districts, and CDM, a company that performed construction and property management services in a metro area in Kansas, has pleaded guilty to theft from an employee benefit plan.

According to the plea agreement, in November 2010, the owner signed a trust agreement with Nationwide to establish the PCI Building Services 401(k) plan. CDM employees could also participate in the plan, which provided for a matching contribution on employee deferrals. She provided her bookkeeper with a list of employees who wanted to participate in the plan and their deferral amounts. Deferrals were withheld form employee paychecks as of February 1, 2011.

On December 31, 2011, Nationwide sent quarterly statements to retirement plan participants, which showed no contributions deposited to their accounts. The bookkeeper provided the owner with a reconciliation showing that contributions were missing from the 401(k) plan. Several participants confronted the owner about missing 401(k) contributions. The owner assured employees their funds were being held in escrow with Nationwide, although she was using the contributions for her own benefit.

She went so far as to blame her accountant for embezzling as much as $1.2 million from the company and filed a police report. She also filed a complaint with the Office of Disciplinary Administrator against a former employee, saying that employee was responsible for administration of the plan.

However, in May 2013, the owner met with a Department of Labor (DOL) civil investigator and admitted she was the responsible party and agreed to set up payments to reimburse funds she embezzled from the 401(k) plan.

The plea agreement orders the owner to restore at least $50,000 to the plan. The U.S. District Court for the District of Kansas must still accept the plea agreement.