Understanding Pension Fraud and How to Prevent It

Key Takeaways

1. Pension plans remain a target for fraud because they hold a large sum of money that individuals might not access for decades.
2. Fraud can occur internally or externally and typically involves either mismanagement of funds or theft of individual benefits.
3. Understanding your rights under the Employee Retirement Income Security Act is key to protecting your retirement assets and identifying potential misconduct.

A pension is one of the most valuable assets for an individual and is an investment in long-term financial security. In the 1960s, approximately 50% of the private sector workforce had a pension. According to data from the Bureau of Labor Statistics, as of March 2025, only 14% of private industry employees were offered a traditional pension plan.

Although traditional pension plans, also known as defined benefit plans, are becoming less common, pensions remain a frequent target for fraud. This is due in large part to the large amounts of money accumulated over time that are typically inaccessible until retirement—making them appealing to bad actors.

Fraud, defined as wrongful or criminal deception intended to result in financial or personal gain, can have serious and costly impacts on pension plans. Whether committed internally or externally by employers, employees, fund managers, or third-party vendors, pension fraud threatens the financial security of plan participants and retirees. The two primary types of pension fraud center on (1) providing pension benefits and (2) stealing a person’s pension benefits.

Fraud in Providing Pension Benefits

This type of fraud is often committed by those responsible for managing pension funds, such as employers, plan sponsors, custodians, recordkeepers, or fund managers. Common examples include:

• Denial of pension benefits - denying a surviving spouse pension benefits after an employee’s death.
• Improper asset management - violating investment policy standards, mismanaging funds, or inflating performance metrics.
• Unrealistic financial assumption - plan sponsors may use an excessively high discount rate to understate liabilities and overstate the plan’s funded status.
• Commingling of funds - mixing pension assets with personal funds.

Theft of Another Person’s Pension Benefits

This form of fraud targets an individual’s retirement benefits, often through identity theft or misappropriation. Examples include:

• Impersonation - fraudsters assume someone’s identity to claim that person’s benefits. 
• Failure to report a death - family members continue to withdraw or cash pension funds after a recipient’s death.

Other types of pension-related fraud include falsifying records, tax fraud, and scams specifically targeting elderly retirees. Any fraud committed where a pension is directly or indirectly manipulated for personal gain may qualify as pension fraud.

ERISA: Safeguarding Pension Rights

Employers and fund managers have certain fiduciary duties to act in the best interests of plan participants. Under the Employee Retirement Income Security Act of 1974 (ERISA), they can be held liable for damages from fraud, negligence, or mismanagement of pension assets.

While ERISA does not require employers to offer a pension plan, it does establish minimum standards for the pension plans in private industry.  Key ERISA provisions include:

• Plans must furnish information regularly and automatically to participants.
• Plans must meet minimum standards for participation, vesting, benefit accrual, and funding.
• Fiduciaries are accountable for plan assets and must act in the participant’s best interest. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring plan losses.
• Participants have the right to sue for benefits and breaches of fiduciary duty.

Protecting Yourself

Everyone should be aware of their rights under ERISA and understand the plan provisions that must be disclosed to participants. If you suspect you or someone you know is a victim of pension fraud, take immediate action. Potential contacts include:

• Your employer’s HR department or benefits administrator
• Local or state law enforcement
• The Department of Labor’s Employee Benefits Security Administration (EBSA)
• Corporate or personal legal counsel
• The Securities and Exchange Commission (if the fraud involves a publicly traded company)

Staying informed about your plan, reviewing statements carefully, and reporting inconsistencies can help safeguard your pension and make sure that your assets remain secure.