Legal Question in Business Law in Pennsylvania

My employer withheld 25% of my 401K contribution over the year.

My employer withdrew my deduction for my 401K but did not deposit it into the account. Instead, he used it to pay payroll and keep the company afloat. The affect was company wide and no notice was given to the employees. My W-2 statement reflects $x dollars withheld. My retirment fund year end statement reflects $x - 25%. Our employer promised to contribute into the fund in the fourth quarter as well but never did. A memo was published by my employer stating that he is working to get the money into the fund by the end of the first quarter, including the promised employer match. With the way business is right now (Slow), I cannot see how this will be done. I feel like we are in a loose-loose situation. If legal action is taken, the company will most likely tank.

1. Was it legal for him to withhold our money?

2. What should we do?


Asked on 1/30/03, 3:19 pm

1 Answer from Attorneys
J. Bryan Tuk Mandracchia & Modesti, LLC

Re: My employer withheld 25% of my 401K contribution over the year.

The answer to your question largely depends on whether or not your plan if governed by a federal statute called ERISA, which requires (among other things) employers to promptly deposit retirement contributions withheld from an employee's paycheck into an account for that employee's benefit. Using retirement plan contributions to meet payroll is prohibited by the statute.

If your pension plan is governed by ERISA, it sounds as though your employer is potentially engaging in a prohibited practice.

ERISA also imposes penalties on employers who engage in this kind of conduct. I would be happy to speak with you about your situation.

Please call me at (215) 540-2633 at your earliest convenience.

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Answered on 1/30/03, 3:24 pm


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