I know two retirement plan providers in Federal prison for embezzling retirement plan assets. They did the crime, they are doing the time. However, there are times when people haven’t embezzled, but they have done enough troubling things, that people in government think they might have embezzled.
I knew a plan sponsor that the government thought they embezzled because of poor advice from a third-party administrator that it was OK to write a check from a defined benefit plan representing the owner’s benefit to another subsidiary, that was failing. Anytime there is a check from a plan to a company that sponsors the plan, that’s a clue to the government that something bad might be going on. Transactions between the plan and plan sponsor, as well as individuals, have to look above the board. Taking participant money and commingling it with corporate bank accounts is a recipe for disaster on the compliance end because it jeopardizes the tax-qualified status of the money and again, gives people the impression that something wrong has happened.