My Employer Forgot to Fund My 401(k) for 4 Years


Dear Penny,

I am a nanny who is paid legally. I’m almost 53 years old. I have been with a family for four years. I started making $720 a week before taxes, and now I make $800 a week before taxes. I signed a contract saying I’d be paid (matching) 4% of my pay into a 401(k). 

I didn’t understand what every line and abbreviation meant on a pay stub. I thought for 2½ years that the 4% was being taken out. I didn’t realize it wasn’t until someone tried to steal my identity. 

When I confronted my employer about it, she said that it was a “mistake” and that I will see it on my check as soon as she gets it figured out. She said that she will add the inflation rate and something else. We have had a few discussions about this, but I still do not have this coming out of my check. 

I will hold them fully accountable for 100% of what they owe me, even if I have to take them to court. I have 1½ years left. I don’t know where to turn and how much they owe me and how much I need to put into a 401(k) to get caught up. Please help.


Dear T.,

If your employer owed the electric company 2½ years’ worth of back charges, I doubt she’d expect to get a year and a half to correct her mistake. So her dilly-dallying is maddening, especially given that the family entrusts you with the important role of caring for their children.

But if she owed the electric company, she would have had more than a few discussions at this point. She would have gotten pummeled with phone calls and past-due notices. Eventually, her service would have been cut off. So I think you need to bring this matter up every week until your employer takes action. Make it clear that you’ll continue to provide your service only if she follows the contract both of you signed.

Got a Burning Money Question?

Get practical advice for your money challenges from Robin Hartill, a Certified Financial Planner and the voice of Dear Penny.

DISCLAIMER: Select questions will appear in The Penny Hoarder’s “Dear Penny” column. We are unable to answer every letter. We reserve the right to edit and publish your questions. But don’t worry — your identity will remain anonymous. Dear Penny columns are for general informational purposes only, but we promise to provide sound advice based on our own research and insights.

The first question I’d ask is whether your employer ever set up a retirement plan in the first place. I suspect that the answer is no, in part because of the 4% match.

In situations like this one, i.e., when someone wants to set up a retirement plan for a single household employee, usually they’d set up a SIMPLE IRA (more common) or a SIMPLE 401(k) (less common and more complicated). For both of these plans, the employer must either match employee contributions dollar for dollar up to 3% or make a 2% flat contribution. No additional employer contributions are allowed.

A SIMPLE IRA is fairly straightforward to set up. Your employer can easily establish a SIMPLE IRA by filing IRS Form 5304-SIMPLE if they want to let you choose the brokerage for the account or IRS Form 5305-SIMPLE if they want to choose the institution. Again, your employer’s contribution would be capped at a 3% dollar-for-dollar match. So you’d need to find an acceptable compromise given that your contract says 4%.

If they continue to drag their feet, you could set up either a traditional IRA or a Roth IRA on your own and ask them to adjust your pay so that you can make the retirement contribution they promised you on your own. The drawback is that this would increase your taxable income. You’d want them to “gross-up” your pay so that you’d get the full 4% after taxes.

Correcting for the past contributions they didn’t make will be a lot more complicated. But you should make it clear that you expect to be compensated for the 4% they were supposed to withhold from your paycheck, their matching contribution, as well as the lost potential earnings. The U.S. Department of Labor has a calculator for determining lost earnings, but the rules are complicated.

The family should consult with a certified public accountant about how to correct this situation — which I get is frustrating advice for you, since you can’t exactly force them to go out and hire a CPA. In the meantime, you can contact the Department of Labor’s Employee Benefits Security Administration about any additional steps you should take by filling out this form.

But please do not allow your employer to simply add your retirement contributions to your paycheck whenever she gets around to it. Getting that money in a lump sum will result in a big tax bill for you. Plus, you won’t be afforded the tax advantages or protections you get with a retirement account.

Obviously, the amount of pressure you can apply here depends on your financial security. If you couldn’t afford to go more than a couple of weeks without pay, you might want to shop around for another job so you have a Plan B before you issue an ultimatum.

This is a benefit that you’ve clearly earned. Hopefully, you won’t need to file a formal complaint or fight them in court for it. But these may be your only options if your employer refuses to pay up as promised.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].


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