401K Forfeiture?

Factual Questions
1

Howdy folks!

I’m a long time lurker of the boards, so I know not to rely on any answers as legitimate legal advice…but I also know there’s some legal types around, many Texans around, and possibly combinations thereof.

My wife is being offered a better position that won’t open up for a few months. She’s excited about it, but of course will remain professional until she can submit notice are her current spot. One comment she made piqued my interest: she told me a former coworker who stormed off the job forfeited her 401K for ‘not giving notice.’

Texas is a right-to-work state, so I thought that limited an employer’s actions if you left without notice. I’m certainly surprised to hear that a 401K could be forfeit for any reason, considering it’s wages earned and held in a govt exempt fund of some kind. She heard it had to do with their profession - medical care - and an attempt to discourage medical professionals from skipping jobs easily.

I’ve never admired anyone’s work ethic so much as my wife’s, I know she’ll work hard to the end and give proper notice - it’s just the right thing to do. So, to me, it’s a hypothetical question. Could her, or anyone’s 401K be at risk based on their work behavior? Is this legal in Texas or any state?

Anyone with 401k or employment law experience is appreciated…

InkBlot
:eek:

2

I am not an expert but I know a little. You have to divide the money up into two parts: employee and employer contributions. The money you put in is yours and no one can take it. Money that the employer contributes is subject to “vesting” rules. They may make donations to your 401K account but you may have to remain with the company a certain time afterwards or meet other criteria before it becomes fully yours. I would guess that the employee in question lost some of their employer contributions to the 401K.

3

Buidling on Shagnasty’s comment:

Once an employee has worked the required number of years, all employer contributions (present and future) will be vested and non-forfeitable. One does not need to work a certain number of years to keep each year’s contributions.

Also, 401(k) plans are governed by federal law (namely, ERISA–the Employee Retirement Income Security Act–and the Internal Revenue Code). Texas law has no authority with resepct to 401(k) plans.

The rumor that was described in the OP sounds completely untrue. The manner of departure (i.e., with or without notice) has no relation to the amount of 401(k) benefits to which an employee is entitled.

4

Actually, it depends on the plan. The $1 Million 401(k): Investing Strategy For 20- And 30-Somethings | Money Under 30

That said, whatever interest an employee has is either vested or it isn’t. The divestiture for failure to give notice is almost certainly bs. The best way to find out what conditions are imposed on vesting is: take a look at the plan.

5

The previous responders are correct. Provisions regarding 401ks are highly regulated and are not something an employer can use as a blunt instrument to punish non-compliant employees. Your contributions belong to you without exception and the employer’s contributions are yours so long as you have worked long enough to become vested. This is what most likely happened with the other employee, she simply had not worked there long enough.

The other possibility is that there is a year end profit sharing contribution made for all employees and this employee was not eligible for that year’s contribution because she left. That plan would be governed by a plan document that spells out the rules in detail though about eligibility. The only possibility where the terminated employee was correct is if the employer trumped up their refusal of this contribution as being a result of the manner of her leaving, rather than just a provision of the plan itself.

In short, your wife has no worries, but she should check to make sure she is vested so you know what to expect.

6

This sounds good…and about what I expected.

It wouldn’t surprise me that employer would fib like this to intimidate their employees. Their grasp of employment law has always seemed shaky.

Recently, my wife’s managers finally convinced corporate to upgrade a junior tech of hers. It would have been a job reclassification resulting in nearly double that person’s current salary.

The new job title did not require any formal degrees, certifications or background checks, but this junior tech happened to have a degree from a small college back in Ohio which helped bolster her position. Well, she’d been an employee there for about 2 years, and since no background check had ever been made originally, the Office Manager decided to make one now.

Without telling her.

The check hit a road bump when it turned out Junior Tech’s diploma had been withheld over a parking ticket. The small town college called Junior Tech, worried something was wrong (apparently they don’t get many background checks) and helped her sort out her degree status very quickly.

Not being prepared for it, Junior Tech was a bit frazzled when the Office Manager called her into her office for a discussion. We’ll never know exactly what happened, except that things got heated. You see, this promotion was “approved” well over 6 months ago. Many things in this office are behind…no one has had their annual review in at leas that long…and the Office Manager seems to be spending more time sending out policies on restricting iPods in the work place and blocking personal calls than catching up.

Junior Tech got heated, and blurted out, “well, if you’d just do your f***ing job!” at some point…for which she got walked out immediately. As much as we’re on her side, what can you do? She did lose her cool.

So, fast forward a week or so, Junior Tech let’s my wife know she still hasn’t gotten her final paycheck. Apparently, the office is “investigating” the situation. This sounds odd to us, and we’ve a good friend who is an HR professional. According to her, the office did two very bad things: 1) Background check without authorization. 2) Withholding her final paycheck. Just those things alone could have supported Junior Tech in a wrongful termination suit.

But, life for Junior Tech is OK after all…within a week, she was hired at a competing firm, in the new job title, making well more than twice what she was before. The degree thing is fixed, and behind her. The only “down side” is the unemployment commissions investigation found the Office Manager’s side of the story “not credible” and awarded Junior Tech a full year’s salary in unemployment. Except she’s already rehired, so the office squeaked out of that one.

My whole opinion is, the sooner my wife escapes that place, the better.

InkBlot

7

What everyone has said is true. There is one tiny little exception where “giving notice” might make a difference. If you are very close to vesting, it is possible that by giving notice they will give you the extra week or whatever needed to vest. Note that I am talking about a week or a month difference, maybe.

8

The vesting feature that db4530 refers to was known as “class year vesting”. It is no longer allowed in ERISA plans. Sorry, I don’t have a useful site to back this up. Perhaps when I can get at some of the reference materials back at the office, I could post something more definitive.

9

Related question, just to make sure I understand (my documents are around here someplace … gotta find the damn things): I’ll be vested in my company’s 401k plan after five years. Do I understand that, if I resign before I’m vested, I’m entitled to a reimbursement of the funds I contributed (minus taxes)? I realize I won’t get what the company contributed.

10

It’s been a few years since I supported our 401(k) system — and, as others have said, it depends on the plan — but IIRC vesting typically applies to the “company match,” not your contributions. So what you put in is yours, and you may be eligible for part of what they contributed on your behalf. It depends on where you are on the vesting schedule.

And you should be able to avoid taxes (as well as a semi-whopping penalty) by rolling over the entire balance into a qualifying account. As the ads say, “consult your financial adviser.”

11

Correct.

Depends on what you do with the funds. What Are 401(k) Plans, and How Do They Work?