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Woman drains ex’s retirement account

By Barbara Whelehan · Bankrate.com
Friday, December 7, 2012
Posted: 5 pm ET

Divorce is a tough experience, but such hardship doesn't cut you any slack if you don't stay on top of your retirement paperwork, as one poor fellow discovered.

Imagine this scenario: After 11 years of marriage, you and your spouse call it quits and you move out of the house. After you leave, a letter from your former employer is delivered to the house that your ex now resides in. The envelope is clearly marked: "To be opened by addressee only." Your ex opens it and discovers there's a new procedure in place to access your retirement funds online. After following the procedures, your ex drains the account in four months.

This happened to William Foster of Tulsa, Okla. He lost $42,126.38 altogether -- and didn't even find out about it until January of the following year, when he received a tax form from the plan provider reporting a distribution of that amount. Foster sent a letter to his former employer's plan administrator, "claiming potential fraud, as I did not request withdrawal from my plan and I did not authorize any disbursement from this plan," according to court documents.

The 10th U.S. Circuit Court of Appeals concurred with a district court's ruling that the plan was not at fault because it doesn't have to insure against wrongful actions by third parties, according to PlanSponsor.com. The court found that the plan isn't under any obligation to pay the benefits twice "because of William Foster's failure to comply with his obligations to ensure the plan had his correct address," according to the report.

Foster neglected to notify his former employer, where he hadn't worked for the previous six years, of his change of address. And now he's out 42 grand.

From the PlanSponsor article by Rebecca Moore:

The court found that the employer and plan did nothing wrong. The decision to process account withdrawals was based on receipt of a procedurally sound request. According to the court's opinion, Foster was fully informed of how the plan would allow him access to his money, and that someone with the correct User ID and PIN would be treated as the legal participant for purposes of processing withdrawals.

Foster failed to notify the plan of his new address until 15 months following his split from his wife. In the meantime, the plan mailed a document to the Foster home describing changes in how participants would access their accounts. It included an explanation of how a User ID created by the participant would replace the Social Security number for identification purposes. Foster's ex-wife received the document and made an online request to put in place a new User ID, which the plan confirmed in April 2005. The following month, she changed the account password, changed the listed permanent address to a post office box and withdrew $4,000 from the account. During the next several months, she drained the account.

Anyone is capable of this type of oversight. Let's learn from this poor guy's mistake and stay on top of our retirement planning paperwork, no matter what may be going on in our lives.

What do you think? Should the court have ruled differently? Should the plan provider cough up his money?

***

Follow me on Twitter: BWhelehan.

Correction: A previous version of this post identified the plaintiff as Michael Foster. His name is actually William Foster.

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636 Comments
Cindy Meagher
January 02, 2013 at 8:02 pm

I agree he should have changed his address but he is NOT legally obligated to roll his money out if he doesn't want to. Most plans have a minimum limit that they can force you to roll out but not at that amount. My best 401k account/returns are with a former employer!!

I agree that he should go after her for "stealing" his money especially if they were already divorced. The government probably won't support it because they don't want to waste their time going after small amounts of white collar or matrimonial theft.

Send the IRS after her! They always want a buck. She should have to pay it ALL back plus the fines and penalties because once taken out, he can't put it back in a former employer's account.

Bjorn Loftis
January 02, 2013 at 8:01 pm

A very similar thing happened to me. My ex-wife drafted a Domestic Relations Order, had it signed - ex-parte - by a judge (who seemed to be under the impression she was an attorney). The fiduciary, Fidelity, Qualified the DRO and permitted her to withdraw $18,000 out of my 401K - when she was only due $4000 in the divorce settlement. I found out after the request was made, but before the check was disbursed. The courts immediately issued TRO demanding that she not dissipate the funds - which she ignored. After 6 months - a full order and judgement of contempt was issued - demanding she repay the $18,000. She ignored that as well. After a year - she was jailed for a month on the contempt charge - bonded out by her family for $2000 and she fled the state. Presently - she still owes $20,000 (interest and atty fees) in the civil matter. But that is minor compared to the $15000 in child support arrears and the felony non-payment of support warrant.

In closing:

The Fiduciary (Fidelity) was not liable - they had a QDRO signed by a circuit judge.

I alleged the judge was negligent - but the Missouri Commission on the Retirement, Removal and Discipline of judges said his execution in the matter was not negligent enough to justify discipline.

Legally, my ex is accountable. However, in civil court - its unclear she will ever face any more than the 30 days she spent in jail.

Jean
January 02, 2013 at 7:50 pm

At the very least, seems like the ex-wife committed felony theft crime. On a civil level, the ex-husband may sue the ex-wife for the return of the money and damagess (for the lost return on investment). I hope she isn't judgment proof, because she's gambled the money away! It looks like she got the gold and he got the shaft. If this story is true, I wish this fella quickly and successfully gots his hard-earned money back.

Chris H. Smith
January 02, 2013 at 7:24 pm

The Plan is probably OK, but authorities at every available level should drop a sixteen-ton weight on the ex-wife (after they get the money back).

tee tee
January 02, 2013 at 7:07 pm

call judge judy she can help don't give up so fast.42grand is a lot of money.get a freeze on your credit so she can't get nothing illegal again.go to life lock they will sign you on right now

Kristin
January 02, 2013 at 6:55 pm

Agree that he needs to press charges against her. The plan, the employer are not responsible - he is, of course. But what she did was just wrong especially if she was not on the account in the first place.

greg
January 02, 2013 at 6:50 pm

The court is correct in every way, he should have 1. made sure address was changed 2. transferred the acct OUT once he was terminated to either a new employers plan or an IRA rollover 3. checked why he was NOT receiving quarterly/annual statements. all HIS responsibility, not the plans.

CJ
January 02, 2013 at 6:24 pm

If it was stolen, then the person would have needed the username and SSN# to access the account. He needs to try and press charges against her or at the least sue her in cival court. She took money that did not belong to her under false pretense.

Geno
January 02, 2013 at 5:02 pm

I agree with Frank, in that the wife violated federal law by opening mail not meant for her. Bring the US government down on her, and then have the IRS come after her as well for taking the income, not him instead. Even if you don't get the money back, these two hassles with the federal government will be a very nice revenge indeed, and all legal! Put the grief on her!

john Tetreault
January 02, 2013 at 4:26 pm

How was the victim fully informed... The plan sent notice of a CHANGE IN WITHDRAWAL POLICY to the wrong address. Because he never received the notice, he was operating under the old withdrawal policy, under which he was fully protected. Seems to me that when there is a dramatic change in policy such as this, the plan should be required to send the notice via certified mail, restricted delivery. Using their logic, even if they had the correct address, if his mail got stolen, and someone cleaned him out, they still wouldn't have been liable. This definitely isn't right.

I would think a competent attorney would be able to argue that since they have no proof that he received notice of the changes, that they are bound by the old terms, and should not have released the funds.