According to the complaint, none of the defendants inthe claim sought confirmation from the plan participant on thetransactions. (Photo: Shutterstock)

The Labor Department is investigating the theft of $99,000 froma participant in Estee Lauder's 401(k) plan, according to the ERISAattorney representing her in a civil claim filed in U.S. DistrictCourt for the Northern District of California.

Teresa Renaker, founding partner of San Francisco-based Renaker,Hasselman, Scott, is representing Naomi Berman, a teacher in theBay Area who worked for a unit of Estee Lauder between 1998 and2006.

Labor officials have confirmed to Renaker that the investigationis ongoing, and that Berman was in no way "in cahoots" with thethief or thieves, she said.

In October of 2016, Berman received the first of two lettersfrom Estee Lauder, confirming distributions of $37,000 and $50,000from her 401(k) account. Berman left assets in the $1.4 billionplan upon separating from Estee Lauder in 2006.

The distributions were sent to accounts at SunTrust Bank and TDBank. Berman did not have accounts at either institution. A thirdunauthorized distribution of $12,000 was realized only when Bermanreceived her account statement—she never received a letterconfirming the third transaction, according to court documents.

Threats to the security of 401(k) assets in an era of heightenedcyber criminal activity have been on regulators' radar for severalyears.

But relatively few instances have been recorded. One mediareport revealed a participant in a plan administered by Prudentialhad been pilfered, but the retiree was ultimately made wholewithout legal action.

Between October 24, 2016, and January 2, 2017, Berman made 23calls to Estee Lauder's recordkeeper, Alight Solutions, which wasthen branded as Aon Hewitt. Alight is named as a defendant in thelawsuit, along with Estee Lauder Inc., its Employee BenefitsCommittee, and the plan's custodian, State Street.

Alight reported to Berman that it would investigate thetransactions. Upon completion of that investigation, Berman wastold no money was recovered, and that she would not be madewhole.

According to the complaint, none of the defendants in the claimsought confirmation from Berman on the transactions.

"Naomi's case is so egregious," said Renaker. "There wereapparently no affirmative steps to confirm the distributions. Whenthe second distribution came around, to a different bank, how didthat not raise a red flag? To me, that is just common sense."

It is unclear if the distribution requests were made over thephone or online. Renaker began making formal record requests fordocuments and records of the investigation to the named defendantslast March. But no responses were given, said Renaker.

The Labor Department has not issued definitive protocol in stepssponsors and service providers should take to confirm distributionrequests.

"This is a tough space to regulate because things are moving soquickly," acknowledged Renaker.

But definitive regulations may not be necessary, she said.

The lawsuit alleges two violations under the Employee RetirementIncome Security Act.

"ERISA has very clear guidelines for fiduciaries of ERISAplans," said Renaker. "One of fiduciaries' primary duties is tosafeguard plan assets. I don't think we need a regulation that says'you have to confirm transactions'. Participants' rights arethoroughly protected by the duties of loyalty and prudence. I don'tthink there can be any dispute that if retirement savings arestolen, there is a fiduciary problem."

Under one allegation in the lawsuit, the defendants breachedtheir fiduciary duties by allowing the plan to make unauthorizeddistributions, failed to confirm the requests for the money, failedto provide timely notice of the distributions by phone or email,failed to identify suspicious requests that were wired to differentbank accounts, failed to have in place processes to safeguardagainst unauthorized withdrawals, and failed to monitor thedistribution process.

The second allegation claims the defendants failed to complywith the plaintiff's requests for plan documents in a timelyfashion, a requirement under ERISA.

In other ERISA class action claims that have alleged sponsorsand service providers failed their fiduciary obligations, serviceproviders have levied a non-fiduciary defense, sometimes pointingto contractual language disclaiming fiduciary status.

"We don't yet know what those agreements say," said Renaker."But my feeling is State Street is a fiduciary as custodian ofthose assets. Even if they rely on their relationship with Hewitt(Alight) as the recordkeeper to the plan, that does not seemconsistent with their obligations as custodians to the assets. Ithink all four defendants in the case are fiduciaries."

Renaker does not see her client's case as the kind of "impactlitigation" that will force regulatory action. Along with returningthe stolen $99,000, the lawsuit seeks lost investment earnings fromthe time of the distributions, and a $110 per-day fine that ERISAlevies for failing to deliver requested plan documents. It alsoseeks to recover legal fees.

"No, this is not a case I will retire on," said Renaker. "Mygoal is to protect my client's interests and see her madewhole."