In the last few years, there’s been a lot of publicity about the fast-growing crime of identity theft. More than half happen in the workplace. Benefits and compensation files are the most vulnerable targets.
The scariest part: Victims of benefits-related ID theft often make out worse than those who fall prey to the more common variety. The bad guys are ahead of investigators after such thefts occur, and are often very good at covering their tracks.
Also, because benefits ID-theft is a relatively new type of crime, there’s no well-established system for victims, plan sponsors and vendors to set things straight after the fact.
401(k) accounts a prime target
Not surprisingly, employees’ 401(k) accounts have become the primary target for benefits thieves. An alarming MSNBC news report showed just how easy it can be for thieves to tap into an employee’s 401(k) accounts: If an online account gets hacked into or account paperwork falls into the wrong hands, it takes only a few mouse clicks to wipe out the victim’s retirement savings.
With typical credit-card or bank account fraud, victims need only call their card issuer or bank, report the crime and refuse to pay for an item. But 401(k) theft is much, much harder to resolve.
Three huge obstacles:
- Money in 401(k) accounts is not federally insured, like a bank account.
- 401(k) accounts rarely — if ever — come with automatic identity theft protection from the vendor, like credit cards.
- Even if the theft is successfully resolved, the situation becomes an ERISA nightmare for plan sponsors, because your company also has to account for the way the theft affected the growth of the employee’s account before the money was restored.