Q. Last week, I opened my 401(k) plan quarterly report and was shocked to see that the employee contribution column had zeros in it. I asked the owner of the company about it, and she said that she borrowed the money to help pay off vendors during a cash crunch this past summer. I am not talking about the company's money (no matching employer contribution was made, either), but my money. She even sent out a company-wide e-mail stating she had done this and would make sure the money would be put back in the 401(k) plan soon. Isn't this against the law?

A. Diane A. Seltzer, a Washington lawyer who at various times has represented both employees and companies, said, "I'm still picking my jaw up off the floor. It's so blatantly against the law."

She said that by federal law, funds contributed to an employee's 401(k) savings plan must be held in a trust, "a separate account only for the benefit of the people whose money is in the trust."

"It's a prohibited transaction for the employer to take plan assets for his own interest," she said. "There are criminal penalties for doing so," including unspecified fines and prison terms of up to five years.

Seltzer said workers should "demand that [the company owner] put the money back immediately. The damage is not just the [missing] contributions, but also the interest" the account might have accrued. She said workers ought to file a report with the Internal Revenue Service and the Department of Labor, which oversee administration of 401(k) plans.

Even then, Seltzer said, "that wouldn't remedy the whole issue. I'd be concerned about this happening again."

She suggested the employees check the overall plan to determine who has been supposedly overseeing it and perhaps seek to change administrators - to make certain the owner cannot again dip into it for the company's use.

Copyright The Washington Post Company, November 7, 2003