The Alarming Rise of 401(k) Scams and What It Means for Your Savings

Year after year, you’ve diligently put money in a 401(k) plan for your retirement. Scammers and thieves want that money. Here are the types of scams they are using to steal your 401(k) money and how to protect yourself.

Online 401(k) Scams

Thieves are targeting 401(k) accounts in a number of ways, including online scams. If your login has been swiped, you are vulnerable.

“This has even begun to manifest in high-volume ‘bot attacks’ where criminals are using an automated script and thousands of stolen logins to attempt to identify and compromise victims’ accounts,” says Al Pascual, Chief Executive Officer and Co-founder of Scamnetic.

Phony Investments

Another way thieves are ripping off consumers is by tricking them into putting their 401(k) money into sham investments. The investments aren’t real, but the scam is.

“(Scammers) mislead consumers who have access to a self-directed 401(k) into investing in things like commodities or FX through fake online platforms,” Pascual says. “These platforms have a convincing look and feel, and as the victims watch their investments grow, they are encouraged to invest even more, but when the victim tries to withdraw funds, they are faced with requests for fees and taxes that are really just attempts to steal even more money.”

Phone and Text Scams

Thieves pretend to be financial advisors and deceive 401(k) investors with phone calls and text messages. It is all a ruse to get investors’ personal information, which they use to get into 401(k) accounts.

“Scammers pose as financial advisors or retirement plan representatives and trick innocent individuals into sharing their login credentials, giving up personal information over the phone, or misleading them to malicious phishing links in text messages,” says Clayton LiaBraaten, Senior Executive Advisor of Truecaller.

Scams Through Robocalls

Scammers will attempt to reel in unsuspecting 401(k) investors with robocalls using artificial intelligence (AI) and voice impersonations.

“Another scam is robocalls, even though the FTC reports a decline in this space, AI is opening the door for deepfakes and voice impersonations that make the scams more intricate and harder for people to detect,” LiaBraaten says.

401(k) Rollover Scams

A 401(k) rollover scam is another way thieves are swiping money out of 401(k) accounts. They encourage investors to move their money into a self-directed individual retirement account (IRA) and then convince investors to buy wildly overpriced gold coins.

In a 401(k) rollover scam, thieves also target investors who use paper checks in their rollovers.

“401(k) rollovers still happen using old-fashioned paper checks,” says James Lee, Founder of StratFI. “This creates another source of vulnerability—your mailbox. These checks can be intercepted, endorsed with a forged signature, and fraudulently paid out to someone else.”

401(k) Loan and Withdrawal Scams

One trick is for scammers to persuade a 401(k) investor to make withdrawals or take loans from their account and give it to the scammer.

“And even if they don’t have a self-directed 401(k), scammers have no scruples and are happy to convince their victims to make withdrawals or take loans from their accounts—whether that be in association with an investment scam, a romance scam, a tax scam, or any other,” Pascual says.

Some thieves may be associated with the 401(k) plan itself, but outside scammers are the bigger threat.

“Investment cons are as old as time and can occasionally involve insiders. That said, the far more common threat is from career criminals who are targeting accounts to compromise and investors to mislead,” Pascual says.

How to Protect Yourself from 401(k) Scams

There are several easy steps you can take to guard against 401(k) scams, beginning with additional security measures on your online account.

“Consumers should take advantage of security controls on their accounts, such as two-factor authentication, to reduce the risk of criminals using stolen credentials,” Pascual says.

Here are some additional ways to keep close tabs on your 401(k) account.

“Use complex passwords, and do not reuse passwords for multiple accounts,” says John Wilson, Senior Fellow of Threat Research at Fortra. “Leverage notifications to stay aware of account activity. Scrutinize any request regardless of communication channel. Be aware that scams can be conducted via email, phone, and SMS. Regularly review your account and verify any suspicious activity.”

Block suspicious phone calls and text messages that discuss your 401(k) account.

“The best defense is to stop the scams before they reach you,” LiaBraaten says. “This would require a proactive approach (using) tools to detect and block suspicious calls and texts. Services that identify fraudulent or high-risk numbers, based on large databases and patterns of scam activity, can go a long way to safeguard you from being exposed to fraudsters.”

Step in and help older investors manage their 401(k) accounts. “Older investors should consider adding trusted contacts to their accounts. These are individuals—such as close family members or caregivers—who are notified whenever there is high-risk activity. This can help more quickly detect if an account is compromised, or if the older investor is unwittingly scammed,” Pascual says.

Before attempting to roll over money from a 401(k) plan, stay steps ahead of scammers by following these three tips.

“Consult with a fiduciary such as a fee-only financial planner about the pros and cons of your rollover options. Only roll over your 401(k) to a known financial institution. Keep an eye out for your rollover check in the mail,” Lee says.

If you are not sure whether an email, text, or phone call regarding your 401(k) account is legitimate, reach out to your plan advisor and ask if they sent it or made the call. If you suspect a scam, you can report it to the Federal Trade Commission (FTC).

The Bottom Line

Thieves are after the money in your 401(k) plan. They use online scams and rollover scams, and they con 401(k) investors by text messages and phone calls. They will swipe a 401(k) rollover check from an investor’s mailbox and trick people with fake investments. They convince unsuspecting investors to make loans and withdrawals from their 401(k) accounts and give the money to the thieves.

To protect yourself from 401(k) scams, be on the alert. Watch out for scam emails, text messages, and phone calls. Keep track of all notifications regarding your 401(k) account. Report any suspicious activity to the FTC.