Back in the day - before ERISA - retirement plans had 'bad boy" clauses. These were plan provisions under which a participant would forfeit his vested account balance if the participant was a "bad boy" for such actions as violating a non-compete clause or committing a criminal act. But ERISA did away with "bad boy" clauses.

ERISA's prohibition against bad boy clauses generally precluded a court being able to order the retirement plan to pay out a participant’s benefits to a third party as restitution, even for a crime committed against the employer.

We’ve seen an instance or two over the years in which an employee was terminated after being caught midnight shopping at the company’s warehouse using a ten-fingered midnight discount. The terminated employee applied for and received the value of his profit sharing plan accounts.

But note the word “generally” two paragraphs up. There are situations in which a participant’s account balance can be forfeited. You can look no further than the Department of Labor (DOL) Monthly News Releases announcing their enforcement actions.

These actions typically involve the DOL suing a fiduciary for failing to remit employee contributions to a 401(k) plan. The resolution could be a judgment ordering the defendant to directly restore all losses to the plan including opportunity costs (lost earning) or from a reallocation of the defendant’s account balance.

But, you may ask, what about benefits in a retirement plan being from the creditors of plan participants and being insulated from claims in bankruptcy? That’s a story for another day.

This article is for general information only, and is not intended to be tax or legal advice. Taxpayers should seek counsel with their tax and legal advisors for the application of retirement plan law to their specific situation.

Jerry Kalish is President of National Benefit Services, Inc., a Chicago-based retirement consulting, actuarial, and administrative firm. He has been publishing The Retirement Plan Blog since 2006. He can be reached via email at

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access