Employee embezzles money, employer wants it back.

[katieinny]

An employee embezzles a large sum of money from the employer (not from the plan). The employee has a significant balance in the company's 401(k) plan, but it's my understanding that the employer cannot attach the plan.

I guess the next best thing would be to have the employee sign over the distribution check, but the 20% withholding rule means that the employer will not get a chunk of what he's entitled to.

The only other thing I can think of is to have the employee roll the money into an IRA and then take the distribution from there to avoid the 20% withholding.

Does anyone have any other suggestions for getting the employee's money from the plan?

[david rigby]

I like the IRA route better than the 20% withholding.

You may find some help from prior discussions. Use the Search feature, and try different search words, like "embezzle", "embezzled", "embezzlement", etc.

[austin3515]

If the employee (former employee!) has any sense at all, he'll leave the money right where it is, safe from anyone who wants, including the people he stole from.

[david rigby]

Most of us would prefer not to advise the "perpetrator" about his best course of action. Probably, the judge will "encourage" this person to take a rollover distribution, then withdraw the funds and sign them over to the company.

[GBurns]

Provided that there really was embezzlement, otherwise there would be no judge.

Being accused is not the same as being charged, and being charged doesn't mean that the employee might even be tried much less convicted.

[Bird]

Most of us would prefer not to advise the "perpetrator" about his best course of action.

True, but neither would I want to be involved in an action in which the participant unwittingly relinquishes his ERISA rights.

[QDROphile]

A plan administrator especially would not want to be advising anyone about "arrangements" for purposes of using plan benefits to deal with a matter that has nothing to do with the plan. That applies to a TPA, who is an agent of the plan administrator. Embezzlement by an employee of employer money does not concern the plan. If the administrator is presented with an irregular request that arises out of arrangements between the employer and the employee, the administrator will have to evaluate whether or not to comply with the request. A request for distribution to the participant or a direct rollover is not an irregular request.

[Kirk Maldonado]

To restate what I think QDROphile said in slightly different terms:

While a request for a distribution or a rollover isn't enough, by itself, to trigger alarms, if the TPA knows that the employer may be trying to circumvent the anti-alienation rules by "encouraging" the participant to take a distribution, the TPA should seek the advice of ERISA counsel.

[Blinky the 3-eyed Fish]

I actually had this same situation not too long ago. The participant was to roll over his distribution into an IRA and then take a distribution to pay back the embezzled funds. While I knew of the arrangement, I didn't feel particularly "involved" enough to warrant legal advice.

The participant signed the distribution election forms and returned them to me while not being flanked by 2 large gentlemen, i.e. he acted of his own free will. He will then have to initiate the distribution from his IRA of his own free will. I think avoidance of jail time is affecting his decision to comply.

I may be naive, but I didn't feel that I was at any risk. I was just complying with the distribution request. Whatever they did after that was neither my concern nor under my influence.