401k Plans

[Guest BillFlann]

Our company is in the process of changing 401k providers. They have given us a list of mutual funds into which we can make our investments. They have identified those new funds that they believe are most like the funds of the "old" provider. They have even given us the option to let them know where to invest our "new money"! So far - so good! However, with regard to "old money", i.e., our funds that are with the "old" provider, we have no choice. The company refuses to: 1) allow us to make a direct transfer (rollover)to an IRA; 2) allow us a choice as to where we can transfer our funds with the new provider. The only choice is that the company will decide on the specific mutual fund where they will invest our money - even when they have been instructed by the individual participant that the participant does not want to be invested in that fund!

To me this seems to be unethical at the least and perhaps illegal at worst. However, I'm not a 401k expert. It just seems wrong for a fiduciary to take a client's money and invest it against his/her wishes.

Any advice from someone more knowledgeable than I?

[R. Butler]

I am not sure I completely understand the facts of your specific situation, but the scenario you are describing seems pretty normal.

First, the fact that your employer is switching service providers does not entitle you to a distribution under the plan. That is why you can't roll it to an IRA.

Second, are you sure you won't be able to redirect the money with the "old" provider once it has actually been allocated with the "new" provider? In many of the "take-overs" we handle, where investment products are switched, the funds are initially invested with the new investment company in similar funds as they were with the old investment company. It is done this way so that the money remains invested while we breakdown the money received by participant and source for the new investment provider. It generally takes us 2-3 days after the transfer to get the information necessary from the prior administrator and to allocate money on a participant level. However, once it is allocated on the participant level, each participant can make investment changes as he/she chooses.

Again, I don't have all the facts, but it sounds like your plan does allow for self directed accounts. Check with your employer, you are likely going to find that you will be able to redirect your investments within a few days after the money is transferred over.

Hope this helps.