401K forced rollover?

Nothing conveyed orally is legally binding, unless you are majority stockholder (or in class that comprises a majority) and you can demonstrate in a court of law that your vote on the sale depended on such oral assurances. (Not likely!)

So what would you have done differently -- that you cannot do now -- if they had told you from the get-go that the

401(k) would go to the new company?

This sounds like a legal question, not a financial planning question. You should post your inquiry to misc.legal.moderated. But I'm sure I can tell what the responses will be: (a) the devil is the details, which your posting here is sorely lacking; and (b) if it really matters to you financially, don't rely on the anonymous/unreliable newsgroup for advice. Run, don't walk, to a labor attorney who can tell you what your rights are.

Of course, the "simple" answer is: quit! Then you can do whatever you want with the 401(k).

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Are you an employee of the new company? If so, I suspect that no, you do not have any recourse short of quitting. In that case, they do have to give you your money.

-Mark Bole

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What do you know about the new 401k that leads you to believe you wouldn't want your funds transferred and to continue to contribute to it?

Elizabeth Richardson

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I don't think your 401K was "sold" to the new company. That's your money, not your employer's to sell. However, it's possible that the new company has taken over as custodian of your old 401K plan, or the plan was merged into that of the new company. None of us on the net can tell you exactly what is going on; you need to get something in writing from your employer, or call the account services folks at your old plan and see if they have any details yet.

Some years back when the company I worked for was acquired by a much larger one, our old 401K plan was closed. We were given 90 days or something like that to tell them what to do with our money; I chose to roll mine over into the new company's 401K plan, which was actually a much better plan than we had before (better investment choices), but that wasn't automatic -- I had to fill out some paperwork to make it happen. Beware that "cashing out" is a dumb idea anyway since you have to pay penalties as well as taxes. I also suggest you make sure you're enrolled in the new company's 401K plan now -- this is probably not automatic either.

-Sandra the cynic

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"Sara Brown" wrote

What part sounds illegal? Yes,they told you one thing and then did another. But it's not clear you were harmed. Harm is one of the first requirements for a civil lawsuit. Also, the requirements for a legal contract have not been met.

I think what you are experiencing here, perhaps for the first time, is the one major drawback of a 401(k). Namely, the employer gets to call a lot of the shots on them.

It is true you can quit. Then one option you will have is rolling over the 401(k) to a Traditional IRA. Also, are you near retirement age? Then your options for the 401(k) increase too.

It's possible the new company will have better choices in its 401(k), too.

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There isn't too much detail here, but the plan administrators have a lot of freedom, perhaps even to do they did to your investments.

I wonder if then you could roll it oven an IRA of tour own. Could this forum answer this question, please?

TIA

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Sandra hit on something that sounded fishy to me also. When changing qualified plans (new company or not) the IRS requires a blackout period of not less than 30 days. During this time, no changes can be made to the accounts (you don't want a bunch of action occurring in the accounts at the same time they are changing custodians). Plan participants must be notified in wiriting before said period and are often allowed to request a distribution at that time.

Contrary to some of the statements here, an employer cannot transfer your assets independent of your wishes. When you enrolled in the 401k you enrolled with a specific provider, under a specific set of T&Cs, and with a specific set of investments. That can't typically be changed without your approval. Furthermore, the IRS is very adamant that 401k plans are not assets of a company and therefore should not have been included in the company merger. By definition the assets are the employees, held IN TRUST by the company, and custodied by an investment company FOR THE BENEFIT OF the employee. Lastly, it is uncommon that the purchasing company would include the 401k assets in negotiations. There is little they can do to prevent immediately losing the assets they "negotiated" for (through employee attrition) and they also can't report the 401k on their books (held in trust separate from the company).

I suspect the situation was poorly explained to you or you are being manipulated by management. The purchasing company almost assuredly wants the 401k assets as it likely reduces their overall expenses and pads the plan providers' pockets. Perhaps the outgoing management is "fibbing" to get in the good graces of the acquisition company.

Keep asking them questions, seek a lawyer if necessary, consult the DOL website for additional help.

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"kastnna" wrote

Are you referring to the Sarbanes-Oxley Act? If so, in general, it requires that at least 30 days notice to participants yada prior to any blackout period, where "blackout period" is defined to be a suspension of usual privileges yada for a period of more than three business days.

Also, I believe this law applies only to public companies (namely, those held by shareholders etc.). Private companies are encouraged to comply with this law, but I do not think they currently are required to do so.

Depends on the meaning of "transfer."

I believe what it boils down to is the companies have to be reasonable. They can't go exchanging one's specific stock or mutual fund positions willy-nilly, for example. If they do, and the employees can show harm, there most certainly may be a case. The 1999 lawsuit between Signet employees and their subsequent employer, First Union. is worth googling, since it was settled in favor of the employees about 2001.

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kastnna wrote: [...]

Everything except your last statement sounds about right to me. Some ten or fifteen years ago, a Fortune 500 company I worked for decided to move 401k custodianship from State Street Bank to Fidelity. There was a lockout period as you describe, but we did not have a choice to take a distribution. Of course, we could have converted all investments to cash-equivalents prior to the switch, but we had no choice about losing specific investment choices available under the former custodian, and absent any action on the part of employees, specific funds were automatically mapped to similar funds under the new plan. (To the best of my recollection -- I no longer have the detailed paperwork).

I can also easily believe that rules for publicly vs. privately held companies are different.

This is one of the drawbacks of leaving money in a 401k with a former employer. Rolling over to an IRA removes these restrictions, plus enables better tax treatment of pre-retirement withdrawals for first-home purchase, education, and a few others.

This is also one of the reasons why employer-matching contributions in a

401k should not be considered as constructively-received compensation -- you don't really have full control over it until you leave the company (or reach retirement age).

-Mark Bole

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Of course, if you terminate employment in or after the year in which you attain age 55 but before you reach 59-1/2, you also lose something by rolling your 401(k) to an IRA.

Dave

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Yes - there's an older thread that went through the pros and cons of the

401(k) to IRA rollover. My current favorite - When you convert from IRA to Roth IRA (and the income limit goes away in 2010) you may not separate the pre-Tax contributions from post tax. If you could do so, you can (and should) convert only post tax deposits, and therefore pay no tax upon conversion. The proportion of pretax money will only be bumped higher by rolling the 401(k) now. I may actually go the other way, transferring all my pretax IRA money to my 401(k), then convert remaining (post tax) money from IRA to Roth IRA. The cost and hassle will be worth the effort in the end.

Joe

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joetaxpayer wrote: > When you convert from IRA to Roth IRA (and the

I disagree (with the last sentence). If it makes sense to contribute to a Roth vs. a deductible IRA/401(k), then it may make sense to convert pre-tax IRA money. It's really the same decision isn't it?

-Will

william dot trice at ngc dot com

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It is entirely possible that no "cash out" period was provided in this circumstance. I am not sure whether the cash out offering is required or just common-place.

I would hesitate to apply your past experience unilaterally. The pension protection act and ERISA drastically changed the rules since "some ten or fifteen years ago". Things are much different now. Your scenario also didn't involve an M&A, just a plan provider switch within the same company. In an M&A the actual Trust document changes, not just the plan provider. New trust documents entail new employee consent. Lastly, you never "severed your employment" which prevented a cash-out option. In an M&A, you technically "terminate" with one company and "hire" at another. That severance (although technical) allows for distribution.

I've opened numerous IRAs for clients that went through this exact same scenario, but I've never met one that wasn't allowed to cash-out during the M&A. That's not to say it's impossible, just that I have never personally encountered it.

Not really. With the exception of Sarb-Ox, which largely focused on limiting the powers of highly compensated executives of public companies, all 401k plans are regulated by the same laws and internal revenue code. Descrimination testing, blackout periods, matching, safe harbor regs, etc, etc... are all the same.

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Not necessarily. It's a matter of timing. Converting pre-tax dollars may bump up a tax bracket in a specific year but not in another year and vice-versa. Converting non-deductible dollars doesn't require paying tax on the contribution.

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Good point.

-Will

william dot trice at ngc dot com

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