Fraud "not uncommon" in 401(k) hardship withdrawals

One result of the rocky economy has been a sharp rise in requests for "hardship distributions" from 401(k) retirement plans.

Employers aren't required by law to allow for hardship distributions, but many do - or at least they have until now.

That might change. The publication Workforce Management reports that hardship-withdrawal fraud (committed by employees who want to avoid penalties for early withdrawals) is "not uncommon."

Last week, home-shopping retailer QVC suspended more than 200 employees at its North Carolina distribution plant, pending an investigation of hardship-withdrawal fraud.

From Workforce Management:

In an August 4 letter to suspended employees, Nick Brecker, vice president total rewards at QVC, said that his team...along with the company's 401(k) administrator, Fidelity Investments, [had reviewed hardship applications] and determined that some applications "may not contain complete or valid supporting documentation..."

A posting on the web site of a North Carolina TV station alleges that multiple employees used the same fake documents (related to such things as forecloses and medical issues) to support their claims, raising a red flag for QVC and Fidelity.

QVC says suspended employees found to be innocent will be reimbursed for workdays missed. Employees deemed to have committed fraud could be fired and face legal action.

Earlier this year, SMI reported on a legal option for getting money out of 401(k) while avoiding an early withdrawal penalty.
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Joseph Slife is a contributing author and editor for SMI. Visit www.soundmindinvesting.com to learn more.