I was heartened to read about US House of Representatives Rep. Stevens' (D-Mich) efforts to get the "No Penalties for Victims of Fraud" act (HR 2163) enacted into law. The bill might have some its origins in the Paula Disberry case wherein Paula was defrauded of her retirement account worth ~$750,00 through a combination of mail fraud and technology manipulation. In this day and age of AI, there seems to be an uptick in scams targeting employee retirement accounts.
The bill is supported by the Consumer Federation of America which notes that in 2023, consumers reported losing almost $5 billion in investments due to scams. The Federation also feels the scope and depth of these scams is growing.
Stevens' bill would waive the 10% early withdrawal penalty if someone were to suffer an early withdrawal due to fraud. Unclear is whether this bill might address any possible State penalties for early withdrawal. The penalties usually apply to withdrawals from retirement plans made prior to age 59.5.
Of interest is Stevens' comment that victims of proven fraud would be given the opportunity to repay the amount withdrawn. What is puzzling is how someone might do that. In the case of Paula Disberry, her $750,000 represented 10 years and 4 months of working at Colgate Palmolive. This is not an amount that most employees could "cough up". Perhaps Stevens is hoping Disberry might recover some of this money via her lawsuit against Colgate Palmolive?
I also wonder if the bill would have more teeth if there was a requirement that it be determined how the fraud was committed and holding the responsible parties liable. It is well and good to propose waiving an early withdrawal penalty as no one wants to be kicked while they are down. But how to help plan participants get back on their feet is the larger question, I feel.
The Parting Glass
Stevens' bill is a good step in the right direction. More needs to be done to prevent the fraud in the first place. The bill can be seen as reactive (ie, waiving the penalty after the withdrawal has occurred). Of help would be to see proactively prevent the fraud in the first place. Barring that, holding accountable those involved could go part of the way in making a defrauded plan participant whole.