looking for a new retirement plan

[resolution]

My husband has been having an ongoing problem getting his employer to deposit his retirement deferrals into the SAR SEP retirement account. He has money withheld from each weekly check, but instead of depositing the money right away his employer is hanging on to it and depositing at his leisure. The 2010 deposits look like this:

01/13/10 2 weeks deposited
02/11/10 4 weeks deposited
03/17/10 4 weeks deposited
05/28/10 9 weeks
09/03/10 13 weeks
12/27/10 7 weeks
01/31/11 13 weeks (credited by Morgan Stanley to 2010)

To date we have had 14 weeks withheld in 2011 and none deposited, This is from his hourly wage that he earned and not from a voluntary employer contribution. We are concerned because we have been losing market gains and we are also having to track everything on his checks and accounts to make sure that he eventually gets what he has earned. We know this is a labor violation, but we don't want to harm his employer by reporting him to the feds. DH is going to sit down with the owner again and go over the numbers but we aren't really expecting results.

We are thinking we would be better off if we could find another pre-tax retirement vehicle so we don't have to mess with his employer's poor accounting methods. I was hoping to get some suggestions on what other pre tax accounts are available. DH has about 2k of self employment income from side work, which I don't think is enough to support something like a KEOGH plan or an individual 401k. Is there anything else out there that anyone could recommend as an alternative account type? We are already maxing the IRA's, so we are looking for something additional to that. Or is there is nothing out there we could either do a taxable account or just continue as we are now.

[Savoir Faire-Demogague in NJ]

There is a govt oversight agency that fields such complaints... I forget which one it is.
Personally I think this is a disgrace.

[resolution]

I agree it is a disgrace, but this area has high unemployment and the median wage is like 17k. This is one of the better employers in the area and he pays a good wage to his employees. We don't want to get him in trouble with the feds or do anything to endanger the business because most of the guys there would never find as good a job.

We just want to find an alternative way to invest. Right now our options seem to be to continue as we are, put all the money with my employer, or just use a taxable brokerage account. I was hoping there were options I was overlooking.

[Deleted]

You said DH was going to sit down with the owner and go over the numbers "again". What was their response the first time?

Would it be possible for him to point out that this is a labor law violation and even though DH doesn't want to report them, another employee might? Something like, "I really appreciate my job here and I wouldn't report the company because it would get you into trouble, but I'm concerned that if this keeps up, someone else might do it." DH would have to be confident that they wouldn't see that as a veiled threat and that DH might do it himself.

[resolution]

The first time was some months ago and the owner acted very surprised like he didn't know anything about it. DH didn't have the printed list of annual deposits at that time, we had gotten a quarterly statement showing his contributions hadn't been deposited for a quarter. The owner's daughter does the bookkeeping for the company and she is a nice girl but makes a lot of obvious mistakes.

[Tiny]

Um, what is the employer doing with the money that's not getting into the 401(k) plan??? This might be a symptom of something more serious than just not putting the money into the 401(k). I would think a business with a substantial amount of money "just sitting there" wouldn't let it just 'sit there' - you know reallocate it or use it with the hope that they'll be able to 'pay back' the 0% interest loan when someone sez something about the missing money.... But then again, maybe they wouldn't be tempted to use it - maybe it's just sitting in an account somewhere... it took my plumber 2 months to cash a substantial check. I personally would have thought they'd want the money ASAP... as they've probably got bills and payroll to make.. but then what do I know...

ADDED: I'm no help on an alternative retirement savings vehicle that's pretax... other than a Traditional IRA. If you are fully funding 2 Traditional IRAs and a couple of Roths I would think an account at Fidelity/VanGuard/TRPrice might be the way to go. You can do alittle research (or use their on-line help) and buy investments that way.

[midjd]

I agree with Athena's suggestion - while looking for another 401(k) vehicle is something you may want to do regardless, the employer needs to be given a gentle reminder that it is seriously violating the law.

[AgeOfEnlightenmentSCP]

I would hire an attorney to write his employer a letter. You do not have to harm his employer, report his employer to any government agency, or make this public in any way that could jeopardize his job. The letter should state in legalese: You have a week to make all the deposits you are required by law to make into the appropriate retirement account plus any subsequent deposits. Henceforth you will make these deposits in a timely manner or we will not only report you to the appropriate authorities, but will sue your ass. Clear? Good. And move on.

It's never a bad idea to have a chip in the game, either. A nice blackmail letter on file can actually help secure his job whereas simply filing a report with some government outfit can cost him. What do you think an already overburdened government bureaucrat is going to do if you file the report, his employer makes the deposits, and then promptly fires him? This way you'll be showing your employer you mean business.

You could also stop contributing and open an IRA on your own...

[resolution]

The bookkeeping is very disorganized. I almost wish they were organized enough to take advantage of our money but most likely it is sitting there doing no one any good at all. They literally delay $100,000 projects because they didn't pay a $3 bill and the supplier refuses to do business until they pay up. Or a guy will forget to clock out on a friday so the next pay check they cut him a check for 40 hours plus an extra 60 hours for the clocked in time over the weekend. There is just no common sense. I am more worried they will lose track of our money entirely than that they will steal it.

We are maxing Roth IRA's through Vanguard right now. I could possibly change DH contributions to a traditional instead of the Roth so we get the tax break now instead of later. I had thought that Roths were better than the traditionals though.

[Formerly SK]

This is VERY illegal. There are very specific Federal laws stating when contributions have to be sent to the 401k company. The employer is breaking the law.

I agree with the pp - this is a sign of much bigger issues. Most likely the company is in financial trouble and he's having trouble making payroll. Your DH should start looking for another job.

Do you get your health insurance from DH's employer? Are you *sure* your premiums are being paid?

My DH's former employer did this. He was behind on all his bills and used the employees' 401k contributions to keep the business running. He finally went BK. He was prosecuted in Fed court but even though he was convicted the employees are still out their money. Creditors come first before employees in the BK. We lost 10K in contributions. DH quit about a year before the company closed, but the people who stayed got screwed with their health insurance. The owner got behind in the premium payments (that he got from employees but never paid to the health ins company) and after five months or so the health insurance company canceled everyone's policy RETROACTIVE to the last payment they had received. One person had given birth under the assumption they had health insurance but then was notified months later that they weren't after all. Another person had had surgery. MANY people got screwed.

Protect yourself.

[resolution]

Thanks for the info, I hadn't realized medical could be cancelled retroactively like that. We are each insured through our own employers but we were thinking of moving him onto mine the next open enrollment. That might be a better idea than I realized.

The company had a very hard time last year during the recession and we thought it might go under. However business has picked up tremendously and they are in the position of having more orders than they can fill right now. They are hiring a couple more employees because they are picking up so much work from their competitors that did go under. However with all of the disorder in their business office we try not to take anything for granted.

DH is planning to talk to the owner about it again and try to get it addressed, but I am letting him do it on his own time and trying not to nag him to do it faster.

[Tiny]

You can have both a Roth Ira and a Traditional IRA and contribute to both - if you DON"T have a 401(k).
There's some overall limit that you can contribute between a Traditional IRA and a 401(k) - they are both pretax dollars that's why there's some limit (maybe 16500?? -- you could contribute 11500 to the 401(k) and 5K to the Traditional IRA??? or whatever combination as long as it doesn't go over X dollars... don't know for sure what the X is...)
The only restriction on the Roth IRA is your income...

The problem with the Traditional IRA is that you can only contribute upto 5K (or some catch up number if you're OLD )

I guess it depends on how much your DH is contributing to his 401(k) - if more than 5K for the year - a traditional IRA isn't gonna do it...

You could put 10K between two Roths and 10K between two Traditional IRAs if you aren't using a 401(k) at your employer...

[ses]

Have you checked into a Roth 401k? It is not pre tax, but you could control your contributions better, maybe?

[dragonfly7]

I think pointing it out to the employer again, both in person and in the letter, are a good idea. Would it do any good to call the bookkeeper daughter directly and point out these things to her as well, since she is the one supposedly keeping track of the money?

[Deleted]

If I were your husband I would stop my 401K contributions ASAP.
I mean now, this instant, pronto!!!

Yes he will miss out on the 401K benefits, but that is way better than losing his money. My wife jobs take 4-5 days and that makes be uneasy... weeks/months I would have lost it

[cronewitch]

I deposit our company 401K every Friday. There is a safe harbor rule that if you deposit within a week you will not be in trouble. The general rule is it must be done as soon as reasonable so you don't know exactly when it is. I used to do twice a month on Admin paydays. Office pay is Monday and the rest of hourly is Friday but the vast majority is only twice a month.

If I were the employee I would be sending an email every payday asking what day to expect his deposit. When it doesn't show up go to the bookkeepers office and demand to know where your money is. She won't like having people in her office demanding their money and telling her dad every payday.

She may be embezzling, disorganized bookkeeping and bills not being paid is a major sign. She may not be paying and filing tax returns so the company has more money to embezzle.

I have seen it done when the owner doesn't pay attention and signs whatever he is given and the bookkeeper also answers the phones. The owner doesn't know about the problem until the bookkeeper OD's and is in the hospital so someone else answers the phone.