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Can an employer withhold my 401 (k) money upon my termination to pay themselves back for unpaid advances on my payroll?

Tulsa, OK |

I was recently asked to resign my position by my board of directors. I agreed to do so. At the time of my resignation, I had an unpaid balance from a payroll advance. My board is delaying giving me my 401 (k) while trying to determine if they can force me to repay that unpaid advance with my 401 (k) money. I am fully vested, and there is no "delay" provision in my 401 (k) plan. The bank employee who is responsible for processing the disbursement told me directly he is just waiting for the plan administrator's approval and signature. (It's a small company--11 employees in the 401 (k) plan.) I was told by a former co-worker they could not "do" this--they were required to give me my 401 (k) and sue me for the advance I haven't repaid. Who is right?

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Attorney answers 3


Your employer has no rights to your 401k benefits. They cannot take that money or place a lien on it to recover unpaid wages. Nor can they deny processing a valid distribution request to hold your benefits hostage to encourage you to pay the wages.

I strongly encourage you to speak with a local employment lawyer who practices ERISA as well as other areas of employment law. In addition to what will probably require making some ERISA claims, you may have some separate defenses to their claims for unpaid wages. I would speak to you about the ERISA claims but I'm not licensed to practice in OK so I wouldn't be able to help you with the other probable state law issues with the wage claims/defenses. However, you can read more about ERISA and ERISA-protected benefits on my website at


Your company is wrong at just about every turn on this, and if they do what they think will be done, you will have to take assertive legal action. Get an attorney now to demand the turnover of your account. But while you're waiting, you might want to move your 401(k) into an IRA rollover account and get it out of the clutches of your employer's administrator. All you have to do is have your bank ACAT the 401(k) into an IRA rollover account. The administrator should honor the transfer instructions.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.


No employer may take money from an employees 401(k) plan for any debt not related to the Plan. While a certain delay for processing is common, your co-worker is absolutely correct. ERISA mandates that no part of your pension contribution may inure to the benefit of any employer.

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