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Government cracks down on worker benefit thefts

By David Pitt
AP Personal Finance Writer / November 16, 2010

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Des Moines, Iowa—The Department of Labor says the recession is financially stressing business owners, and in a few cases they're pilfering employee contributions to 401(k) and health benefits accounts.

The department said Wednesday it has filed civil lawsuits against 24 companies and business owners alleged to have kept money withheld from paychecks that was meant for retirement or health accounts.

"We've seen an increase in the number of these cases as economic times get more difficult and companies are struggling," said Phyllis Borzi, the assistant secretary of labor.

The agency oversees 708,000 pension plans and 2.5 million health plans in addition to a few million life insurance, short-term disability, and similar plans.

The companies range in size, from fewer than 10 workers to more than 100.

The largest case involves more than $6 million in worker contributions. It is filed against Northern Rhode Island Anesthesia Associates PC and its owner. The Labor Department alleges contributions to the company's pension plan were not deposited into the plan and were used to benefit the company, which had subsidiaries in Massachusetts and Rhode Island.

The owner filed for bankruptcy protection in December 2008, the Labor Department said.

The cases are listed on the department's website at: http://www.dol.gov/ebsa/newsroom/ECI/main.html

Most of the 24 lawsuits involve 401(k) contributions. Federal laws require money withheld from worker paychecks to be deposited in the retirement fund within a specified period of time. For small companies with fewer than 100 workers, it's typically within seven business days. Larger companies must deposit the money no later than the 15th business day of the month following the month in which the money was received.

In some cases, the money was diverted for other uses, costing workers lost investment gains. In other cases, the money was never deposited and used for company expenses or for personal use by the company owner.

In addition to civil lawsuits, which attempt to recover the employee money, the Labor Department has begun a program to file criminal cases against some employers or plan administrators.

So far this year, the government has initiated 191 criminal investigations, referring 97 cases to federal prosecutors. It has obtained 20 indictments and seven guilty pleas.

Assets returned total more than $385,000 so far.

A criminal case is pursued in the cases where the intent was clearly to divert the employee money for personal use.