I’ve been with my current employer for about six years. The 401(k) through this employer has been pretty damn good - decent company match, some good index funds in the company plan, very nice profit-sharing contributions. But we’re getting sold in a very short time (weeks.)
The presentation I got from HR today sounded like - “your 401(k) will be inactivated for about 60 days while we set the new system up.” I asked what “inactivated” meant, and was told “No contributions from you or the company. You’ll still have access to your account, and the account will still accrue whatever interest and dividends.”
Not great, but not terrible.
“After we get the system set up, the company match to your 401(k) will remain the same”
…so far, so good…
“However we are still working out what funds will be included. Once we do and once the transition is complete, you will need to re-allocate all funds in your current plan to funds offered by the new company”
Alarm bells are ringing.
What it sounds like to me - all of the good funds I’m in now will be cashed out. The money at the time (whenever it is) must immediately be reinvested in the whatever 401(k) funds the new company decides to cover.
I hate this idea. I like the portfolio I have now. If the new offered portfolio is better or worse, so be it. I’ll deal with that once it happens. But I want to keep what I already have invested where it is.
Do I have any options? Can I roll what I have now over into a general IRA?
Honestly, I don’t know what the new funds will be. And HR may be misrepresenting. But I don’t want to take any chances.
Our current 401(k) is managed by Fidelity. Our new one will be too.
But as it sounds like I’ll be forced to divest in the old company’s offered funds, then reinvest in the new company’s offered funds, I’m wondering:
Do I have any legal right to the holdings I currently have?
Do I need to talk to a lawyer?
This may be all overreaction. The new funds may turn out to be the same funds we’ve had for years. But I’m still worried, and want to prevent being forced into dumping everything I’ve put into my 401(k) into a lousy plan.
HR was unhelpful (not properly informed) in advising us. So it’s a worry.
There’s nothing you can do until the new system is announced, so there doesn’t seem to be any point in stressing about it now. Chances are good that the funds available in the new plan will be similar to the ones you already have.
I would not recommend rolling over to an IRA unless you have a detailed discussion with a tax professional about the consequences. But to be blunt, you’re probably stressing over no big deal.
IMO there’s really nothing to worry about. Almost surely the same funds or very similar funds will be available from Fidelity. In the worse case scenario you can always roll the funds over to a self-directed account where you can invest it whichever way you want. That would actually be my choice, which was what I did multiple times in the past when I had assets moved to new 401k accounts. This is all inside a tax-deferred account so unless you cash out there are no tax consequences. So relax.
I know 401(k)s tend to offer a somewhat limited selection of funds even when the management company has many others available (e.g. Fidelity manages my company’s 401(k), but our native fund selection not only doesn’t include all of them, but in fact includes a lot of our-company-only funds that are not publicly traded).
I think you’re pretty much stuck. For example, my husband’s company changed management companies twice while he was with them. Both times, they cashed everything out and moved it to the new management company. What was especially annoying was there was about a month lag time, during which the cash was sitting somewhere, and not earning a damn thing. At least you don’t have THAT to look forward to.
When I last had a “job change”, my company’s consulting division was sold to a larger company. It was treated as a separation from the old company - i.e. I could leave my money in that employer’s account, or move it to an IRA, or I could have rolled it into the new employer’s account (I ultimately did an IRA). Not quite what you’re looking at, however.
You mean like an IRA? or a self-directed account within the new 401(k)?
Not all plans offer the self-directed option (mine does, but there’s an extra fee for contributions). And if this isn’t treated as a separation, the IRA may not be an option.
My company was purchased a couple of years ago, so we went through the same thing. They mapped the old fund options to the new ones (large-cap domestic equity fund to another large-cap domestic equity fund, etc.). We were lucky in that our employer match increased from two percent to five percent and our contributions and employer contributions continued during the transition. On the other hand the transition lasted ten or eleven months, during which our money in the old company’s 401(k) plan was frozen (no loans could be taken, no changes made to the allocation).
I don’t think the acquiring company can necessarily keep the same investment choices. Presumably the total number of fund options is limited, and there’s no point in having redundant choices.
Those funds are yours and you can transfer them to an IRA if you aare so inclined. EXCEPT for any portion of the company match that might require vesting - see your original plan for vesting schedules if applicable.
There’s no reason to, tranfers are done every day.
After the sale is complete you should receive a new plan document and fund menu. HR usually doesn’t know anything about 401’s.
Now THAT sounds fishy and of dubious legality - I don’t know for sure but that sounds like a VERY unreasonable freeze period. I freely admit I don’t know that for sure. :).
One annoying thing when our division was sold off, was people who had loans on the old 401(k) plan could no longer pay it off by direct withdrawal from paychecks. I seem to recall that they had to get cashier’s checks and mail them (I could be wrong about cashier’s checks, but I know they had to mail the payments). At least it wasn’t like a regular termination, where it was “pay now or take the consequences”. The terms of the selloff specifically included that 401(k) loans could continue to be paid off over time vs. becoming immediately due. Of course, new loans couldn’t be made.
We got the new list of funds. Thankfully, 3/5 funds I’m currently invested in will still be available. The other 2 have supposedly nearly identical offsets.
So I’m not panicking anymore.
I’m still a bit annoyed - isn’t money you put into a 401(k) yours, once you’re fully vested? How does a company have a legal right to tell you what your invested money may or may not be invested in? Why do the rights to keep previously invested money in specific funds depend on your current employer?
I think that things will be alright. It sounds as though you are inclined toward low cost index funds and are concerned about the fees and expenses.
Most likely you will have the same or similar selections within the new plan, and Fidelity is known for having reasonable expenses for their funds. Of course your 401k will take hidden fees from you in order to pay your plan administrator, but that is how they operate.
I recommend www.bogleheads.org as a resource for future investing related questions.
Rich
It’s a shame they didn’t give you the option of starting anew (and taking a rollover of the old employer’s 401(k), into your own IRA). That’s what I was able to do; actually I left mine there for a while before moving it. Of course, only our division was sold off, the company itself still existed.
I am a financial planner and have designed plans and otherwise have extensive experience in the defined contribution plan marketplace.
Your employer has wide latitude to do all of these things that are described in the thread. One of the key attributes in a defined contribuiton plan is that you as the individual do not set the investment menu. It can and does change over time and though it is your money, it really isn’t up to you to determine the fund lineup. This is one reason why it is sound practice to create an IRA with the company you want and the funds you want and rollover money when you leave an employer into that account. The OP is upset that he lost a couple of funds, but even if his company wasn’t sold, they could have moved from Fidelity to MassMutual or something and his expense ratios could have tripled overnight. Not a thing you can do about it.
Given that the company has been sold I would consider taking this opportunity to call Fidelity and set up a rollover IRA. You can then ask them to transfer your funds in-kind from your 401k to IRA and start fresh with the new company’s plan.
ps. I absolutely agree that www.bogleheads.org is a wonderful board for any investment related advice.
As noted, though - this may NOT be an option. I don’t think the company sale is treated as a separation, therefore the 401(k) is quite likely locked in with his current employer. It’s all got to do with the terms of the sale.
I often find people shocked that they can’t do what they want. I know of at least one university system for instance that decided that you had to convert at least 50% of your 401k balance to an annuity at retirement. So long as you were in the plan you were stuck with their rules.