Why It’s So Easy to Steal 401k Plan Assets

We might not understand why a fiduciary would steal plan assets, and that's exactly why it happens

401k, theft, retirement, advisorsStuffing his pockets with plan participants' money.

It’s easier than you think for a third-party administrator or plan fiduciary to steal plans assets.

The allegation that TPA Vantage Benefits Administrators did something nefarious with their clients’ money shouldn’t be surprising, especially to me, because I’ve seen it before, first with Matt Hutcheson and then at a TPA for whom I worked.

First, a quick recap. The FBI raided Vantage Benefits Administrators, a Dallas-based “TPA, recordkeeper and professional fiduciary,” in late October.

The FBI wouldn’t say what it was looking for. According to the Dallas Morning News, the firm’s CEO, Jeff Richie, “was sanctioned in 2008 by the Securities and Exchange Commission and barred from the investment business for three years ‘for conducting an unregistered and fraudulent offering’ of securities in the retirement-services company he was running at the time.”

Richie neither admitted nor denied the allegations in that case and the agency waived a $4.3 million judgment based on his financial condition.

Matthew Hutcheson of Eagle, Idaho, was the trustee and fiduciary for the G Fiduciary Retirement Income Security Plan.

He was sentenced to 210 months in prison in 2013 after a jury convicted him of 17 counts of wire fraud for misappropriating over $2 million of plan assets for his personal use. A U.S. District judge also ordered Hutcheson to serve three years of supervised release and pay $5,307,688 in restitution to the victims.

Hutcheson used the participants’ assets to extensively renovate his personal residence, including installing a pool, to repay personal loans, to purchase luxury automobiles, motorcycles, all-terrain vehicles, and a tractor.

As for my personal experience, a plan administrator with whom I worked was close to stealing a distribution from a participant’s 401k account. The only reason he got caught was that the plan custodian realized the administrator got the wrong account number for his rollover IRA.

If the administrator wasn’t so dumb as to get his IRA account number wrong, he would have stolen the distribution. He was, of course, fired, but charges were never brought because no TPA will acknowledge they don’t have processes in place to prevent this sort of thing.

Why is it so easy for TPAs and financial advisors to steal plan assets?

Plan custodians—and in the case of Matt Hutcheson, a TPA—assume that orders to liquidate and transfer are valid. You can’t necessarily blame providers who are unwittingly drawn into a criminal case. Yet while we might not understand why anyone in a fiduciary or fiduciary-like setting would steal plan assets, it’s exactly why it happens, and why we should be on guard.

Ary Rosenbaum is an ERISA/retirement plan attorney for his firm, The Rosenbaum Law Firm P.C. At a flat fee, Ary helps plan sponsors reduce their plan cost, facilitate administration, and limit their fiduciary liability.

1 Comment on "Why It’s So Easy to Steal 401k Plan Assets"

  1. A good article…. 401k investors need also to be wary of alternative investments like Real Estate Investment Trusts or Real Estate Separate Accounts offered by some insurance companies through a variable annuity.

    A decade ago, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published a report entitled “Money Laundering in the Real Estate Market,” in which they reported in a random sampling of Suspicious Activity Reports describing commercial real estate transactions revealed that property management, real estate investment, realty, and real estate development companies were the most commonly reported entities associated with money
    laundering and related illicit activity.
    Based on research from 2006, almost 60% of Money Laundering Activities Related to Commercial Real Estate involved Real Estate Investment companies and Property Management companies. If you invest in a private real estate investment separate account sponsored by an insurance company, you have a 60% chance that your investment will be involved in a money laundering scheme.

    The fact that now service providers can sell proprietary funds to 401k investors ups the risk of fraud as well.

    Dennis Myhre, AIC

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