In 2016, the Department of Labor’s Employee Benefits Security Administration closed 2,002 civil investigations, with 1,356 of those cases resulting in monetary results for retirement plans or other corrective actions. Additionally, over $777 million was recovered for direct payment to plans, participants, and beneficiaries. There are preventive controls that fiduciaries to retirement plans can use to mitigate the risk of plan asset fraud.
Terminated employee accounts, especially accounts that have minimal activity or outdated contact information, are susceptible to fraud, since a plan administrator may be able to request unauthorized benefit payments. Plan administrative committees and management should perform the following preventive measures:
- Designate an individual who does not have the authorization to request distributions to review and approve distribution requests.
- Provide employees with benefit distribution information upon termination of employment.
- Work with the third-party provider to contact terminated employees on a regular basis to have plan assets distributed.
- Implement procedures to update employee contact information at least annually to ensure that participants, especially terminated employees, are receiving statements to review to ensure accuracy.
Any individual involved in the handling of employee/employer contributions can easily move funds to their own plan or personal accounts, especially if the plan does not have oversight once the funds are deposited to the plan. Companies with a large number of employees contributing to the plan are especially susceptible to fraud. The plan administrative committee and management should designate an individual outside of the payroll function to perform a detailed reconciliation of employee payroll deferral withholdings to plan contribution deposit records to ensure employee contributions are properly allocated to each participant.
Fraud Prevention Steps for Plan Sponsors
Here are some steps that can help keep the plan, its participants, and assets free from fraud:
- Implement a whistleblower policy.
- Ensure proper segregation of duties.
- Perform periodic audits of participant contributions and distributions to ensure there are no discrepancies.
- Educate participants and management on how to monitor their retirement plan.
If you have questions or would like more information, please contact Jessica Kober at email@example.com or 844.4WINDES (844.494.6337).