Poor Communication by Previous Employer Causes Great Losses to Persona

[Guest Dan E.]

Late last year, due to my relocation, my wife left her current employer on great terms and relocated to another job in another city. Both are billion dollar sales oriented companies.

She contacted her previous employer January 24, 2000 to begin the transfer of 401k funds to her new employer. She left 5 voice mail messages with a plan administrator during a 3 week period, and finally received a voice mail February 14, directing her to an automated line to request rollover amount and begin the transfer.

Through the automated line, she requested information regarding the transfer of 401k funds. Ten days later she repeated the process since she had not heard anything. A week later, March 6, she contacted the automated line, and through trial and error, reached an operator. My wife explained that since late January she has been trying to obtain information regarding the transfer of funds.

The next day she received a fax copy, and faxed it back to her former employer March 10.

According to her previous employer's records, on April 11, the company processed her request. On April 17, she received a check 23% less than the December 31, 1999 401k balance.

After several calls, she was told that a "blackout" period was occurring due to a change in the plan's administrator. The blackout period began January 1, 2000 and ended mid March, and that nothing could be processed at this time.

Also, during this blackout period, funds were transferred to similar investments with "similar risks", as she was told. After this transfer occurred on March 10, the fund value went south. However, the balance preceeding the transfer to these "similar investments" was within 1% of the December 31, 1999 balance. Many current employees voiced their dissatisfaction in the drop, and the company was forced to reevaluate their return computations. This only increased my wife's 401k holding by $100.

In a letter sent to her previous employer documenting these events, she received a reply stating that information was sent early December to all employees announcing this "blackout period". While we were in the process of moving and a change of address was made to the US Post Office, we did not receive any information regarding this announcement.

The only thing she received last December from her previous employer was some marketing material sent in error. We believe that this information was placed in the envelope instead of any type of notification. Unfortunately, we no longer have that material.

Our concern is that while she started the process January 24, my wife received poor service and was not advised of any blackout period. It took 6 weeks for her to even receive a form for the transfer. None of the voice messages or automated lines mentioned a blackout period. In fact, in July while visiting with a plan administrator via phone, according to their records, my wife was still an active employee with this company.

QUESTIONS:

Is there any recourse or action of collecting losses due to poor communication and service?

Are there any similar cases about blackout periods, and proper employer's notifications involving litigation?

She had approximately 70% in growth stocks. Did the market take a tremendous downturn mid March to mid April?

How can we register a formal complaint with the Dept of Labor?

Is anything specifically listed in ERISA regarding blackout periods, notification, etc?

[actuarysmith]

I will not attempt to touch the DOL question. However, I would like to provide some comment about asset transfer in general.

I am a partner in an administration firm that works on smaller clients than you refer to. However, in my experience the time required to complete the asset transfer and the fact that there was a blackout period are both consistent with standard industry practice.

Many times the administrator is waiting on information from employees, employers, or financial institutions. This information can, and frequently does hold up the entire asset transfer process.

The only point that you raise that causes me a little concern is why it took so long for the administrator to get back to you. It could very well be that if your wife's company in large enough, they may have been innundated with hundreds of similar phone calls and simply lacked the personnel to respond in a timely fashion. (All the staff could have been concentrating on finishing the accounting of the asset transfer details that you and all of the others were so anxiously awaiting.)

In terms of you being out of town when the mailing went out - I am not sure that is relevant to anything. It sounds as though the plan trustees attempted to make reasonable efforts to notify employees of the upcoming asset transfer to "like" funds. Believe it or not, this is not something that they need to obtain your consent to do. It is the perogative of the trustees to do so if they feel that it is in the best interest of the plan.

The only point that you may have to appeal is the calculation of the earnings during the blackout period. If you feel that the drop in account value was not consistent with what was happening in the funds you were invested in, you should ask for clarification. If you do not feel that they address the question adequately, you could seek help from the DOL first, or an ERISA attorney.

Good Luck!

I hope these comments help to some degree. They may or may not be what you wanted to hear, but I just felt that I would like to provide an independent opinion from someone in the "biz".

[Greg Judd]

Originally posted by Dan E.

...She had approximately 70% in growth stocks.  Did the market take a tremendous downturn mid March to mid April?

Short answer is yes, depending on how 'growth' your spouse's growth component was. If you proxy it with NASDAQ, could have been ~20% dip; if S&P, less. If your spouse's investment vehicle's a publicly listed mutual fund, go somewhere like BigCharts & run an interactive year-to-date chart displaying its performance compared w/one of the indices. As always, your mileage may vary.

....How can we register a formal complaint with the Dept of Labor?

Try somewhere around here, at DOL's Pension & Welfare Benefits Administration site. You'll probably want to give the plan a fair shot at responding first, tho; they're your best bet for prompt action (fewer due process levels to engage).

[Edited by Greg Judd on 09-27-2000 at 03:06 PM]

[Jon Chambers]

Originally posted by Dan E.

QUESTIONS:

Is there any recourse or action of collecting losses due to poor communication and service?  

Are there any similar cases about blackout periods, and proper employer's notifications involving litigation?

She had approximately 70% in growth stocks.  Did the market take a tremendous downturn mid March to mid April?

How can we register a formal complaint with the Dept of Labor?

Is anything specifically listed in ERISA regarding blackout periods, notification, etc?

[/b]

From time to time, our firm acts as expert witness in ERISA litigation. With that background, I have a few comments.

With regard to the first question, I doubt there's much recourse. The argument that you would need to make is that your wife's ability to manage her account was constrained by the lack of information that was provided, that consequently, her employer became responsible for managing the account, and that the employer's management was imprudent. It's unlikely that an argument like that would fly.

Second, there is little if any litigation (so far) relating to black out periods.

Third, a 70% allocation to growth stocks could easily lead to a 23% loss. Many funds with heavy tech orientations were down 40% plus during this period. Internet funds were down more than 80%. Without second guessing the original investment decision, I'd note that a 23% loss is not unreasonable, and it could have been much worse.

Your fourth question has been addressed. But unless there is more going on here, I doubt the DOL will be of much help.

Finally, there is nothing in ERISA specific to blackouts. Your most likely possibility is to use an ERISA 404©argument that you were not permitted to transfer at least quarterly, and that consequently, your wife's former employer became responsible for managing her account prudently, which they did not do. I'm not sure that this is likely to succeed, because the former employer continued your wife's existing investment instructions, and because a prudently managed portfolio could easily have lost 23% in the NASDAQ crash of March/April.

Sorry to be such a downer. You may be able to find an attorney to take the case. But I doubt you would win anything, unless the former employer just wants to settle to make this go away.

[Greg Judd]

Originally posted by Jon Chambers

....unless there is more going on here, I doubt the DOL will be of much help....I doubt you would win anything, unless the former employer just wants to settle to make this go away.

I'm inclined to agree with Jon here. That doesn't make me any less frustrated by the whole situation.

Writing the letters to PWBA/DOL, following thru, may provide some stress relief, tho.

Luck to you, Dan E.

[Guest]

I agree with the previous replies that there's nothing clearly wrong with what the employer did. However, the industry standard seems to be blackouts of about two to eight weeks, so maybe this blackout (about 10 or 11 weeks if I'm reading the dates right) was a little long, and there might be room to argue that it should've taken less time. And, it is possible to do transfers without any blackout, according to an article reporting that MassMutual did a complete transfer over one weekend for Kaiser Aerospace, with no blackout. So, if the employer could have had the transfer done with a shorter blackout, you might have another argument to make. Finally, your best shot at getting some satisfaction is probably by contacting other plan participants who lost money during the blackout, and combining your efforts. It would be prohibitively expensive for one participant to file a lawsuit, and you might not find an attorney who'd be willing to represent one participant on a contingency basis. But, a class action on behalf of all injured participants might make the case more attractive to an attorney.