Plan Management Fraud in Employee Benefit Plans: Risks and Prevention

What Is Plan Management Fraud in Employee Benefit Plans?

Plan management fraud occurs when someone within an organization misappropriates employee benefit plan funds. This risk often involves employees responsible for payroll processing, contribution remittance, or approving participant loans and distributions.

Without proper oversight, internal fraud can go undetected for extended periods.

Common Plan Management Fraud Risks

Manipulating Payroll Contributions

Payroll files may be altered or contribution deposits falsified, allowing funds to be diverted into unauthorized accounts.

Unauthorized Loans or Distributions

When one individual controls approvals, fraudulent loans or distributions may be processed without detection.

Improper Plan Expenses

Plan expenses may be approved that benefit an individual rather than the plan itself.

Key Controls That Help Prevent Plan Fraud

Segregation of Duties

Separate responsibilities for calculating contributions, approving payments, and reconciling deposits whenever possible.

Timely Contribution Monitoring

Regularly compare payroll deductions to plan deposits to confirm accuracy.

Dual Approval Requirements

Require multiple approvals for loans and distributions to reduce the risk of unauthorized activity.

Periodic Internal Reviews

Routine internal audits strengthen oversight and help identify discrepancies early.

Strong internal controls and ongoing monitoring are essential to protecting employee benefit plan assets.