401K Pension Freezing/Blackout Period

[Guest Robert Tate]

My company notified the employees that they would be switching our 401k plan to another 401K provider. We were promised to have this transition completed within a 6wk to a max. of 8 week period. During this period which they called a "blackout" period we could not touch our funds... they remained frozen in whatever fund we mapped to.

This period should have ended 8 weeks ago or in other words it has been 16 weeks and no green light yet in allowing us move our funds. I had every intention of moving my complete portfolio from very agressive to stable until the market showed signs of strength. Now within this last 8 week period I have lost 40% of my portfolio. The majority of this could have been avoided if they had kept their promise to us on their transition time.

What is the legal amount of time a company can keep us from being able to move or touch our money. They have killed my porfolio. Any advice would be appreciated.

[actuarysmith]

Unfortunately, there is no statutory maximum number of days for an asset transfer to occur.

As a TPA, I have seen countless administrative/ fund provider changes. I can tell you first hand that every one is different and many things can pop up in the process that cause unforseen delays.

Have you asked your HR department why the delays have occurred? Without hearing their answer it is difficult to speculate.

Sometimes unusual assets the plan is holding need to be liquidated. This may take extra time. Possibly the sponsor got part way through the process only to learn of potential surrender charges that they were not aware of. Possibly a number of participants have not completed new enrollment forms. Possibly there are some corrective processing items that needed to be addressed by one of the financial institutions prior to the liquidation of the assets. Possibly your employers payroll depost records did not match the records of the financial institution.

The problem with answering your question is that the problem could be with 1) the old financial institution, 2) the new financial institution, 3) your employer, 4) the payroll provider 5) some employees of your employer or 6) the Third Party Administrator. (Or more likely, some combination of the above).

Please let us know what your firms position is on the delays and we can help give you more specific advice.

As a last resort, you could always contact the Department of Labor - they would probably make an inquiry to your employer immediately. This would get attention fast.

Finally, are you sure you have lost money? It is standard operating procedure with many TPA's to liquidate the transfer funds and hold them in a money market account until all the accounting detail is finished in order to reallocate the funds. During this "waiting" period, the funds are actually out of the market earning a very low, yet conservative rate of return.

Had the market been going up like gang busters you would be complaining about the opposite problem......

[RCK]

My advice to others who are warned of a pending blackout period would be to make sure that your account is structured the way you want it before the blackout period begins.

Advice to Robert Tate would be that an 8 week blackout is not unusual, but an 8 week delay beyond that period is a little unusual. For the employer, not communicating what is happening is not the best way to handle the situation. Your employer should be telling you what is happening and why.

Otherwise, I agree with actuarysmith on potential causes and especially on calling the DOL. Also, I think that the DOL is more responsive when they get calls from several different people.

RCK

[Guest JimJ]

Just my two cents... Agree with all above, but would like to comment on the loss of 40% of the portfolio. Remember that a retirement plan is invested for the long term and depending upon your age, you have not lost a thing unless you planed on liquidating the assets. No one is sure what the market will do today, next month, or even next year, but over the long term the market is typically up. Why would you want to sell in a down market and buy back in an up?

It is also important to remember, that even those who are close to retirement age are not close to their life expectancy. Therefore your investment strategy should be based on your life expectancy and not simply your retirement date. I would speculate that those who retire do not liquidate their accounts and spend the lump sum immediately, but rather nibble at their accounts to sustain their life style during the retirement years.

Long story short, you have not lost a thing until you sell. Stick to your investment strategy.

[actuarysmith]

All good comments above.

[MGB]

I have a question. Let's assume that this plan is attempting to be a "participant directed account" under ERISA 404© in order to relieve the fiduciaries of certain responsibilities in investing.

At what point does 404© get violated (e.g., not being able to change funds on a regular schedule), and therefore puts the onus back on the fiduciaries for keeping the money in these investments that lost considerably? (Granted, there is probably no fiduciary mismanagement if the losses are not much different than the rest of the market.)

[Guest JimJ]

I think this would fall back on the "General Volatility Rule".

Pulled from the web the rule reads "Plans may impose reasonable restrictions on the frequency with which participants may give investment instructions, as long as the restrictions are uniform and nondiscriminatory."

Uniform and nondiscriminatory is not an issue since all are in the same blackout and no one has the ability to move their money. The question now is what is reasonable? During a conversion this vague terms becomes more difficult to define. I have seen no precedent set for a reasonable time frame of a conversion. We have all heard the horror stories of a 6-month blackout etc. etc. Also, is the plan imposing the restricitons or the new provider?

I think your question is a good one, but I don't think 16 weeks is unreasonable. (Again, we do not know the true circumstances of this plan and why it is taking so long) Those items could lead us to a different conclusion. Unfortunately, I also can not give you a time frame that would be considered unreasonable. I think it would have to be looked upon on a plan by plan basis, as no two conversions are alike.

[Guest Bandb]

I disagree that a "loss" is not a loss until the investments are sold. The money in your retirement account is real money, regardless of your investment time horizon.

It is true that speculation about the future direction of the market (much less individual investments) is not useful, and that hindsight is 20/20.

But if some investment instructions were made by the participant and not carried out, there may be recourse if the blackout period goes beyond what was originally communicated to employees.

[Erik Read]

I think what we're trying to say that a "loss isn't a loss until sold" is that regardless of the value you still hold the same # of shares which tomorrow may be worth more than today and yesterday combined (let's hope!).

As for a 16 week "quiet period", that's a little long - I'd also like to know if the investments were liquidated or as mentioned if they were "mapped". Most plans that are "mapped" to similar investments are done so in order to lessen the "quiet period" - so even an 8 week period would seem long to me.

Do this - contact HR, ask what has been the cause of the delay. I'm suspecting that the delay is in getting information from the prior vendor/recordkeeper - that is who you would want to report to the DOL, not neccessarily your employer.

Keep us posted on this - I like to follow these issues.

Thanks.

[Guest FredR]

Doesn't 404© provide for quarterly investment changes? If that is the case then 16 weeks would not be at all outside the acceptable period to satisfy the regulation.

It does seem to me that when a protracted period is anticipated that it would be prudent to pull the investments out of the self directed arena and reinvest them is some form of stable value fund. After all the right to self direct is not a protected benefit and can be cut back at any time.

Fiduciaries are not required to time market swings, or even invest in stocks necessarily. Their requirement is to invest and conserve funds so they will be available to provide benefits at normal retirement age.

[Guest FredR]

Doesn't 404© provide for quarterly investment changes? If that is the case then 16 weeks would not be at all outside the acceptable period to satisfy the regulation.

It does seem to me that when a protracted period is anticipated that it would be prudent to pull the investments out of the self directed arena and reinvest them is some form of stable value fund. After all the right to self direct is not a protected benefit and can be cut back at any time.

Fiduciaries are not required to time market swings, or even invest in stocks necessarily. Their requirement is to invest and conserve funds so they will be available to provide benefits at normal retirement age.