Transfer of assets to a new 401K plan provider/trustee

[Guest B12751]

My employer wishes to change the 401K plan provider/trustee.

However, I understand that my non-employer stock in my current plan will have to be liquidated, in order to, facilitate the transfer of assets to the new plan provider. The new plan does not have a provision for individual securities, but only mutual funds.

My personal broker tells me there is a rule that does not force a participant to sell securities at an inopportune time.

What is the law in this matter?

[Demosthenes]

Get a new broker.

1) Seems like the statement implies that "securities" (read stocks) are under some special protection. Mutual funds are securities!

2) If the assertion were true, no plan anywhere could change funds in any down market, if any participant objected.

Have your broker quote chapter and verse of the applicable SEC regs. I'd be surprised if anything of that nature exists.

[Guest B12751]

Thank you for your reply.

What may an employee do to protect themselves from realizing losses in a particular stock due to the employer's desire to change the 401K plan, other than leaving the company before the change takes palce?

[Guest JimJ]

Ask your employer to find a provider who can handle self directed accounts. (I.e. - IDA's, SDA's, etc) The plan will also need to allow for this option. Then if necessary (may not be if the provider will work with the current firm who custodies the assets) do a transfer in kind to the firm the provider has a relationship with.

[Guest B12751]

Thank You, Jim J for your reply.

I have spoken to the new plan provider. They have indicated to me that they have no provision for a brokerage account.

I do appreciate your comment about the ' in kind ' transfer, and will investigate further.

It is very frustrating after years of formulating a portfolio of stocks for retirement to only have it indirectly liquidated by an employer who claims to be acting in my best interest.

[Demosthenes]

To address your personal situation, see if the plan allows for any types of in service distributions and in kind transfers prior to the switch to the new provider.

You may be able to take an in kind distribution and transfer it directly to an IRA.

Schwab, Fidelity and many others offer assistance in rolling over assets into IRA's and should be able to offer guidance in accomplishing their end of the transfer. Determining whether or not the plan permits an in kind, in service distribution is a question your current Sponsor/Trustee will be able to answer.

Just an FYI, I am not employed by Schwab or Fidelity and have no financial interest in either company. I mention them only because I have used both to establish IRAs.

[KJohnson]

I agree with all of the above, but the decision to "go to cash" to faciltiate the change in providers is a fiduciary decision governed under the general "prudence" fiducary standards of Section 404 of ERISA.

Of course, this prudence standard is guaged with reference to all participants in the Plan and not one particpant's desire to direct his or her own account. Thus, absent some unusual circumstances or some form of "self-dealing" on the part of the employer, it would seem that you would have a very "tough row to hoe" in any type of fiduciary litigation.

[Guest B12751]

Thank You, Demosthenes:

I will ask the current plan providers those questions.

Let's just say that I am familiar with one of the 2 companies that you mentioned.

[Jon Chambers]

Just a couple of quick observations:

1) Selling stocks at an apparently "inopportune" time isn't really that big a deal if they are replaced with mutual funds that invest in similar securities. Conditions that cause the stocks to recover are also highly likely to be favorable for funds investing in similar stocks.

2) If you really need to have full control over your investments, don't invest through a qualified plan. Plan investments are owned beneficially for the participant through a trust. The trustee gets the final say on the investment. This is why it's not against any law for the plan to require you to liquidate your stocks. Unfortunately, as plan sponsors and providers seek to make plans appear as if participants have full control over their investments, this important point seems to have been lost.

3) Although Demosthenes makes a good and valid suggestion, in my experience, very few plans permit in-kind in service distributions. It's worth checking, but unlikely to be successful.