DOL Sues Firm for Pocketing Participants’ 401(k) Assets

IT consultant Virtual Matrix Corp. was sued on August 30 by the Department of Labor for allegedly withholding $45,972.08—for certain payroll periods running from April 1, 2021, through October 31, 2022—from its employees’ pay as employee contributions to the plan, retaining the deferrals and failing to remit the assets to the plan.

The DOL, in the name of acting Secretary of Labor Julie Su, sued the Edina, Minnesota-based company in U.S. District Court for the District of Minnesota on one count of a fiduciary breach under the Employee Retirement Income Security Act.

Along with Virtual Matrix, the defendants include company CEO Suman Thotakura and the Virtual Matrix 401(K) profit-sharing plan. Per the terms of the plan, Thotakura was named a special plan trustee for purposes of determining and collecting contributions to the plan, the DOL complaint notes.

Thotakura caused the company to retain $45,972.08 in deferred employee salary contributions and $759.70 in participant loan repayments in Virtual’s general operating account and to use those funds for Virtual’s business expenses, according to the complaint.

The Virtual Matrix 401(K) P/S Plan held $568,498 in total retirement assets for 27 participants as of the most recent data available, a 2021 Form 5500 filing.   

The DOL suit follows an Employee Benefits Security Administration investigation, the DOL stated in a press release.

“Failing to forward voluntary employee contributions to employee retirement plans violates employees’ trust and denies workers the opportunity to earn interest on their investments and prepare for their future,” Mark Underwood, EBSA’s Kansas City, Missouri, regional director, said in a statement.

Per DOL regulations, participant contributions must be remitted to the plan as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets or no later than the 15th business day of the month following the month in which the participant contribution amounts are received by the employer.

Virtual established the plan on January 1, 2014, to provide retirement benefits to its employees and their beneficiaries, the complaint shows.

The DOL complaint seeks to make the plan whole and permanently ban the company and its CEO from serving or acting as fiduciaries or service providers to any other ERISA-covered employee benefit plan and to remove them from fiduciary positions they now hold.

Virtual Matrix did not return requests for comment.

The DOL has sued at least six different retirement or profit-sharing plan sponsors in 2023.