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 http://kielichlawfirm.comAsk a similar question
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.Ask a similar question
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.Ask a similar question