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By: Ted Benna Creator of the first 401(k) plan |
June 20, 2002
This Week, Ted Tackles:
I changed my husband's 401(k) elections, and the portfolio still is largely split 50-50. Do I need to change the allocations as well? ý How can I find a 401(k) account from 1996? ý What are the advantages of a 401(k) over an IRA for a retired person? ý I am trying to build a new home and need a down payment. Can I borrow against my 401(k) for this?
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Q: My husband's 401(k) plan needed diversifying, so I
changed his elections. But I see that the allocations of the money already in the account
are still around 50/50. The new funds I added are a tiny percent of the allocation. Do I
need to change the allocations to be the same as the elections?
TB: It sounds as if you wanted your husband's entire
portfolio reallocated, but your instructions were only applied to future contributions.
You may have thought that by choosing new elections for fresh contributions, that would
cause his portfolio to be reallocated, but that isn't the case. You need to issue a
separate set of instructions to reallocate the portfolio.
If this is what happened, you should give the administrator
instructions for transferring the existing money so that it will be allocated the way you
want.
Another possibility is that the administrator didn't follow
your instructions. If this is the case, you should inform the administrator of the error
and provide it with a copy of your original instructions, if you have one. You should also
consider asking the administrator to make up the difference if you have suffered a loss as
a result of its failure to follow your instructions.
Q: In 1996, I left a job in which I had a 401(k) account
with a large provider and was not given rollover or distribution papers. At the time I did
not think about it. The new job I took also had a 401(k) through the same provider and
that account started with a zero balance. I did not think about the original 401(k)
account at the time. I have since changed jobs several times and am now with a company
that has its 401(k) through the same provider again. So I have yet another account with
them, starting with a zero balance.
I now am trying to find out about the original 401(k). I
have contacted the provider via e-mail. What do I do if it can't help me? I do not have
any of my statements from then.
TB: I would keep after the provider. It should be
able to help you if you can supply your former employer's name and your Social Security
number.
You should be aware that even if the provider confirms the
existence of your long-lost account you will need to contact your former employer to
remove the money. The reason is that your former employer sponsors the plan and is the one
to provide withdrawal and rollover forms.
Another possibility is to ask the employer you left in 1996
about your 401(k). Your former employer may need to ask the provider to verify your
balance, because the provider maintains the plan records. If your former employer has
changed 401(k) providers then you will need to continue working through your former
employer to track down your money. It wouldn't be with the old provider any longer.
If the money is still with the old provider, your former
employer will be able to put more pressure on the provider than you can to get the answer.
Even if you left your former employer on not-so-great terms, in this case the company
probably will be moderately helpful. It is costing the company to maintain your account in
their plan and I'm sure they wouldn't mind closing it.
If these efforts continue to be unsuccessful, I would tell
both organizations that you are going to seek help from the Department of Labor to get
this information. If this becomes necessary, you should contact the DOL office closest to
you. You can get this information by going to www.dol.gov. Look under agencies for PWBA,
which is the unit that deals with retirement plans.
For the benefit of other readers, this is one of the
reasons why I usually recommend transferring your money from your 401(k) to an IRA as soon
as possible after you leave your employer. It can be very difficult to track down this
information years later. If you do leave the money parked in the 401(k), be sure to retain
all your records.
Q: What are the fundamental advantages of the 401(k)
over the IRA for a retired person, if any? I understand the IRA advantage of more
investment options.
TB: You have hit on the biggest one -- the fact that
you have almost unlimited investment alternatives with an IRA compared to leaving the
money in the 401(k).
The situation outlined in the previous question is another
reason -- it can be difficult to keep track of your 401(k) after you leave your employer.
The business may be sold or shut down, or it may change 401(k) providers. Further, the
people who handle the plan at your former company will change over time. In addition, the
people who handle the plan often have other responsibilities that require their attention.
Consequently, former employee issues tend to drop to the bottom of the to-do pile. For
example, reader letters indicate that former employees frequently don't even receive
notices when investment changes are made.
It may be easier to withdraw money from an IRA. Some 401(k)
plans have distribution rules that are more restrictive than IRAs. Some 401(k)s don't
allow withdrawals on demand, and a few don't even allow periodic withdrawals -- it's all
or nothing.
Those are the advantages of an IRA. Here are a couple for
401(k)s.
- Money in a 401(k) has somewhat greater protection from
creditors then money in an IRA, depending on your state of residence. This is a benefit if
you are concerned about potential liability exposure.
- You are already familiar with the investments that you have
with your 401(k). Leaving your money in these investments eliminates the need to consider
alternatives; however, your employer can change the investments at any time without your
approval. If your money is invested in mutual funds, you should be able to retain the same
funds if you transfer the money to an IRA.
Q: Can I borrow against my 401(k) or roll it over into
some other account? We are trying to build a new home and need a down payment.
TB: You are permitted to borrow the money or
withdraw it under the financial hardship rules if you are buying a primary residence, as
long as your employer's plan contains these provisions. These are optional features
that are permitted but not required. As a result, you will have to check with your
employer or the company that runs the plan to see what is permitted for your plan. You
should also review the article that ran on the mPower Cafe in January 2001 and an article
I wrote in January 2002 which compare these two alternatives. Links to these articles are
provided in the "Related Reading" sidebar.
By the way, you can't withdraw and roll over your pretax
contributions while you are still employed prior to age 59 1/2.
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Ted Benna, creator of the first 401(k)
retirement savings plan, answers intriguing questions twice a month. With over 40 years of
experience as an employee benefits consultant, Ted is a nationally recognized expert on
benefits issues. He has authored three books, Helping Employees Achieve Retirement
Income Security, Escaping the Coming Retirement Crisis, and Tips for
Successfully Managing Your 401(k), 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. |
 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.
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