Question: In October 2000, my employer decided to change investment companies. Yet, as of January 2001, my account balance and those of my fellow employees hadn't been transferred. Is this cause for alarm? Or, is this common when switching over?

TB: Such a delay is common if the plan is transferring from a "balance forward" recordkeeping system. These systems track everything in dollars rather than fund shares. Waiting for accounts to be updated is a common problem with this type of system.

One way to tell if the company being replaced was using this type of system is to check one of your prior account statements. If all activity is reported as dollar amounts rather than shares, it's likely the old investment company used a balance forward system.

If activity has been reported as fund shares, this probably isn't the reason for the delay. In this instance, there is greater reason for concern because it is due to something other than the old recordkeeping system.

In either case, I would ask the person who oversees the plan for your company why the transfer has been delayed and when it is likely to be completed. You should consider contacting the Department of Labor office closest to you if you can't get an answer or if the transfer is not resolved shortly.

Question: My company has a plan consisting only of variable annuities, and there are about 50 employees in my company. I've been told that due to our small size, variable annuities are the only investment option we can get. Is this true? If so, how can I find another 401(k) provider that can offer traditional mutual funds and/or equities?

TB: What you have been told is not correct. There are many other alternatives among the large mutual fund providers where your money can be invested directly into mutual funds. Also, there are third-party administrators who handle plans for your size company that do not exclusively offer variable annuities. You could check the yellow pages in your area. Another possibility is to ask some people at companies of your size in your area what kind of investments they have (mutual funds or variable annuities) and who they use to handle their plans.

Question: I participate in the 401(k) plan at work and have contributed after-tax dollars to it. My strategy was to contribute after-tax dollars, get the company-match dollars, then withdraw my after-tax dollars every year. But, when I tried to withdraw my after-tax dollars, my employer said I couldn't and that they use a formula to calculate how much of my after-tax dollars I'm eligible to receive. Their calculation result is about $4 for an after-tax contribution of about $8,000. Is this legal? I thought I should be able to get all of my after-tax dollars when I requested them.

TB: The company is required to follow the withdrawal rules contained in the plan document. These rules should be explained in the summary plan description, which the employer was required to give you when you joined the plan. I recommend looking at the summary to see what it says about your right to withdraw this money from the plan. Because the company offers matching contributions, they may require you to leave the money in the plan for a specific period, such as two years, before you may withdraw it. This is legal if that is how the employer has structured the plan.

You are also required to withdraw the applicable investment income when you withdraw a portion of the after-tax contributions. The investment income that must be withdrawn is taxable and subject to an early withdrawal penalty if you are under 59ý.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every Tuesday. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

Read Ted Benna's Biography

Ted's Table Archives 

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

401Kafe.com is the premier online community resource for 401(k) participants
Copyright ý 1996 - 2000 mPower. All Rights Reserved.

 

Section Guide | Feature Articles | The Experts | 401(k) ABC's Wall Street 101 | The Bear's Cave | 401(k) Frequently Asked Questions | Retirement Calculator