Q. 401k contribution not being deposited

My small employer (22 employees) offers a 401k plan. I understand they have until the end of their fiscal year to provide their matching funds to my account; however, I've learned they are also withholding applying the funds taken from each paycheck (pre-tax) that are supposed to go directly into my 401k account each pay period. They have cash-flow problems from time to time and are using $$ that's supposed to already be in my account. Is this legal? They've explained that it is legal; they just have to fill-out some paperwork and then 'repay' it when they can.

However, when someone leaves the firm, they are not 'made whole' with their own funds plus those not yet matched by the firm -- but rather, given what is essentially an 'I owe you' letter that they'll receive them at some point in the future. But what if they cannot??

What are your thoughts?
Thank you.