A third-party administrator (TPA) and/or plan fiduciary stealing plans assets is easier than you think. TPA Vantage Benefits stole $14 million from 6-7 of their clients wasn’t be surprising to me because I saw it before with Matt Hutcheson and I saw it before at the TPA I worked at.
A plan administrator working at my TPA was close to getting a distribution from the 401(k) account of a client’s participant. The only reason he got caught is that the plan custodian found out that the administrator got the wrong account number for his rollover IRA. So if the administrator wasn’t so dumb in getting his IRA account number, he would have been able to get that distribution. The administrator was caught and fired. Charges were never pressed because the TPA was not going to acknowledge that they have no processes in place to prevent it.
Why is it so easy for TPAs and financial advisors to steal plan assets? The problem is you have plan custodians and in the Matt Hutcheson case, a TPA assumes that orders to liquidate and transfer are on the up and up. You can’t blame these providers who unwittingly got involved in a criminal case, but it’s understandable. Plan providers assume liquidation and transfer requests are lawful because a fiduciary or TPA who steal plan assets will eventually be caught because their fingerprints will be all over the embezzlement.
While we can’t fathom why anyone in a fiduciary or fiduciary-like setting will steal plan assets because they will eventually be caught, this is why we should understand that things like plan embezzlement can happen.