Recover Embezzled Funds from Embezzler's 401k

My 10+ year bookkeeper embezzled funds from our corporation.  While she was forging checks and sending them to her own credit card and bank accounts and taking expensive trips and living high off of stolen money, she had 10% of her salary withheld, and we matched it 50%.  Thus all $235,000 in her 401k represents money she embezzled.   Her entire net worth, aside from what may be hidden in some hole, is less than what she embezzled.  Now I want to claw it back.  Looking for an ERISA attorney.  If anybody can help, PLEASE!  North L.A. County.  By the way, we had her arrested.   Anybody know the process?  State or Federal?  I assume Federal.

16 minutes ago, Chris B said:

she had 10% of her salary withheld, and we matched it 50%. 

Hate to be the bearer of bad news, but the ERISA actually protects her benefit.  There is a 'bad boy rule', but that doesn't apply to salary deferrals or benefits that are vested under the maximum allowable vesting schedule (e.g. 6 year graded).  It's been a long while since I read that rule. So, I'm not even sure if it's still applicable.  Even then, the employee would've had 10 years of service.  So, the bad boy rule would be a mute point.

That aside, you may have a civil case and sue for damages.  In all likelihood, those plan assets will remain protected; even should you win and get awarded millions from that individual.

Good Luck!

Several similar  prior discussion threads, might be helpful to you.  Try the Search box, with various forms of the words "embezzle" or "theft.

Read this thread there are others.  .

The money is protected but you still have leverage.  She can "voluntarily" choose to use plan assets to repay some of the embezzled money, and in return get a lighter sentence.  We had a situation like this not long ago - as I recall the prosecutor had control of the embezzler's checking account; we processed a regular distribution (20% withholding can't be avoided) with a direct deposit to that account, then the prosecutor was able to write a check to the sponsor as partial restitution.  

If you follow the link I gave I tell a similar story to Brid's one of my clients had happen to them in the early 2000s.  The key seems to be getting the prosecutor to be willing to work with your firm.  I would have your attorney reach out to the prosecutor early in the process. 

Bird is definitely chirping the right tune. The only time you can offset ("claw back") the benefit is when the embezzlement was against the plan (not the employer). Restitution by way of taking a distribution and using to pay off the debt is the best alternative, but 20% will also need to be withheld for taxes. We have seen this happen a couple of times as well. Good luck.

18 hours ago, Chris B said:

My 10+ year bookkeeper embezzled funds from our corporation.  While she was forging checks and sending them to her own credit card and bank accounts and taking expensive trips and living high off of stolen money, she had 10% of her salary withheld, and we matched it 50%.  Thus all $235,000 in her 401k represents money she embezzled.   Her entire net worth, aside from what may be hidden in some hole, is less than what she embezzled.  Now I want to claw it back.  Looking for an ERISA attorney.  If anybody can help, PLEASE!  North L.A. County.  By the way, we had her arrested.   Anybody know the process?  State or Federal?  I assume Federal.

Unless stealing from your business is for some reason a federal offense the mutt the likelihood is that it is a state crime. You therefore need ask an attorney in your state familiar with embezzlement. Whatever you do, don't do it without an attorney because if you try to handle it informally I've been told you can be charged yourself for interfering. What is most likely to happen is that the entertain you engage will coordinate with the prosecutor. Good luck.

         The Supreme Court decided in Guidry V. Sheet Metal Workers National Pension Fund et al., 493 U.S. 365 (1990) that ERISA prevented a union from imposing a constructive trust on pension benefits from a collectively bargained pension plan for funds embezzled by union officer from the union.  Thus, funds may not clawed back from the company 401(k) plan, if it is an ERISA plan, for funds embezzled from the company by a plan participant.  There is a question whether ERISA permits the employer to obtain the pension plans after they have been distributed to the participant.  State law usually protects such benefit distributions from creditor claims, whether the plan is an ERISA plan or not.  See, e.g., Guidry v. Sheet Metal Workers National Pension Fund_39_F3d_107 (10^th Cir. 1994). It should be noted even under the Mandatory Victims Restitution Act of 1996, the federal act that permit the garnishment of pension benefits, regardless of ERISA or state law restrictions, for restitution or the payment of federal fines, garnishments are limited by the Consumer Credit Protection Act, 15 U.S.C. 1673.  

         However, the participant may decide to voluntarily direct the plan to pay benefits in whole or in part to the employer in the course of negotiating a plea bargain as discussed above. 

                   Best wishes