Whose money Is it anyway? Loan on 401k

[Guest Summer232]

I never contributed to my company's 401K plan because they did not match contributions, however, after 1 year of service I was automaticly enrolled in the company's profit sharing plan. After 5 years of continous service then I become 100% vested. I reached my 5th year, last year. The profit sharing monies has been transferred to my 401K account (just recently) but I was told that I cannot take out a loan on this money.

My question is, why not, if I am 100% vested? Isn't this now my money to manage?

[WDIK]

Isn't this now my money to manage?

Your account is part of the entire plan and trust and is governed by the documents that established these entities. Some plans allow participant loans, while others do not. Some plans allow individually directed investements, while others do not. Some plans allow for inservice, hardship or early retirement distributions, while others do not.

I would recommend that you review the Summary Plan Description that you should have been provided for an overview of the provisions your plan has adopted. If you are really ambitious, or have insomnia, you may want to request and read the entire plan and trust documents.

[Guest Summer232]

Thanks,

Yes, I am very ambitious. I am getting the run around by the Plan Administrator and have no choice. I wonder if she would forward me the Plan Docs; I have not received anything like that to my knowledge.

Thanks again.

[Lame Duck]

The Plan Administrator will have to provide you with a copy of the plan document if you request it in writing. Failure to do so could result in fines and penalties. However, the Plan Administrator can charge you to reproduce the plan document.

The first thing to check, as WDIK suggested, is the Summary Plan Description (SPD). This is a plan language explanation of the terms of the plan and must be provided to you automatically upon entry into the plan and upon request. There is no charge for giving you a copy of the SPD.

[Guest Summer232]

Okay,

I will send a request for the SPD in writing, today and see what that produce. So far, she has ignored phone calls and message requests.

Thanks

[david rigby]

You should have already been provided an SPD, without having to ask. Is it possible you got one and "filed" it?

[Guest ambeeeant]

There is a lot of misconception, I think, about the ownership of the money that is in a 401(k). I constantly have the issue come up where an employee will call and want to "cash out" their 401(k). The trade-off for the tax deferral of this money is that the government places controls on the access. Whereas the company I work for allows up to two loans at any given time, they do this as a result of it being collectively bargained. Allowing loans adds administrative cost and unless it is part of a CBA, many employers just won't allow it.

In addition to this, I think it can be shown that, when looked at over the long term, you are better off to get a loan elsewhere and allow the 401(k) dollars to continue working for you in your investment choices. Even where loans are allowed, you still pay them back with after-tax money with an interest rate of up to 2% above prime. Of course, this all hinges on how the market performs.

[Guest Summer232]

No, I looked through my files 2 months ago when I requested the loan and unforturnately, I did not see any "Plan" docs so I am at the mercy of our Plan Administrator at this point

[Alf]

My question is, why not, if I am 100% vested? Isn't this now my money to manage?

Remember that it is not your money until your employer and the government say it is. These are retirement funds ultimately.

[Guest Summer232]

According to my employee handbook and I quote "Once you are vested, you may select your own investment options."

I chose to take a loan from my investment.

So far, I have not been able to do anything with the money in my 401K. 2 months ago when I requested the loan, I was told by the "PA" that IRS tax law states that the company has until a year to transfer the Profit Sharing money into my 401K. I talked with and IRS agent and was told that was a mis-statement on the part of the PA. I told the PA, that I had spoken with an IRS agent and soon after the "PS" money was transferred into my 401K.

My company allow loans, I am just getting the run around.

[R. Butler]

According to my employee handbook and I quote "Once you are vested, you may select your own investment options."

I chose to take a loan from my investment.....My company allow loans, I am just getting the run around.

Allowing participants to choose investment options & allowing participants to take loans are 2 very different things. Unless you have a copy of your plan's SPD or plan document, I wouldn't assume that the plan allows loans.

[JanetM]

Sounds like they were consolidating the 401K plan with the profit sharing plan to save money on administration. You MUST read the SPD, chances are you won't be able to borrow the profit sharing funds. Many Profit sharing plans with 401K features only allow you to borrow your own contributions and rollover amounts.

The statement that you can elect your own investments does not mean you can use the loan as on option.

You must read the SPD! Just cause you want it doesn't mean the plan has to allow it.

[pmacduff]

It is possible that the plan only allows loans from the 401(k) deferral source of money. Most of my client's plans do this (I'm a third party adminstrator). The plan does not allow the participant to take a loan from any of the Employer sources (i.e, profit share, match, QNEC, etc.) but the participant can take loans from any 401(k) deferrals they have made. Summer232 said from the get-go that she/he did not elect to put any of her/his own $ in, but became eligible for profit share after a year of service. I think when the SPD arrives, Summer232, you may find this to be true (borrowing only allowed from deferral source).

Summer232 - I'm not sure what you mean by "the profit sharing monies were transferred to my 401(k) account". It sounds like your Employer has decided to allow participants to direct all of their investments (Employer & Employee) not just the 401(k) (Employee) portion or allows direction of all sources after you are vested. Investment direction itself does not automatically include participant loans. Participant loans are a function of the Plan & document not the Plan investments. It sounds like you might confused about the plan allowing participant directed investments and what that means for you.

I'm sorry your PA is not responding as they should, but I think also that you may not be understanding your Qualfied Plan and the benefits it offers exactly correctly, either. Once you receive and read through the Summary Plan Description, hopefully everything will be clearer.

[WDIK]

You seem quite upset by the situation, which perhaps has caused you to misstate or misunderstand several items.

1) In relation to plan documentation such as an SPD you stated "I have not received anything like that to my knowledge." Two hours later you are quoting from your "employee handbook" regarding investment direction.

2) As R. Butler points out there is a difference between choosing investments and taking a loan.

3) In one post you state that the plan administrator "has ignored phone calls and message requests" but subsequently indicate that the plan administrator spoke to you and misinformed you regarding your transfer.

4) It is also a little confusing whether we are talking about one plan with separate investment direction for vested money (hence your thought of a transfer from one plan to another) or two plans.

As frustrating as the situation is, these boards can be of the most help if you can set aside the emotion of the circumstances and provide clear details.

(Sorry pmacduff for echoing some of your thoughts. We must have been typing our posts at the same time.)

[doombuggy]

I agree with the statements said here. It is possbile that the company has two accounts for the plan. I had one of those at my last job, where the 401(k) portion was at Vanguard (before they stopped in August 2002) and was participant directed. The profit sharing portion, however, was trustee directed and held at Fidelity. Eventually, both accounts were held at Fidelity, but remained seperate. it is possible that this is the case at summer's company, and once the PS becomes vested, it is moved from a trustee directed account to a participant directed account.

As for the SPD - I have to be totally honest here. While I have worked in the pension & 401(k) record keeping business since March of 1991, I have never, ever received a SPD for the 3 plans I have been eligible for (I am not currently eligible for my new employer, and I am lumping my last job into one employer, even though we got bought out twice, I never rec'd a SPD). I always stress to the plan administrators to give out the SPDs as required, sometimes I wonder if they ever really do, espically based on my personal experience.

just my two cents.....good luck with your loan request.

I just thought of something else. Most plans that allow for loans require that the loan be for at least $1,000. This means that you have to have at least $2,000 in the account. Could this be why you are being refused? It's a long shot, but a thought. Good luck.

[SMB]

doombuggy,

I am shocked that you would suggest that all employers possibly don't provide copies of a Plan's SPD to eligible employees. Next you'll suggest that they don't provide SARs either!!

(I'm a TPA also - and have found that "you can lead a horse to water..."!)