Guest mlmarvin Posted December 9, 2005 Posted December 9, 2005 Someone has come to me asking for advice on his 401k allocation. Upon looking at his limited choices and the fees associated with all of them, it is apparent that there is NO good alternative. As a result, I was going to suggest, subject to the legality of it all and his employers' approval, that he "quit" for a specified period and then rejoin the company. Then we could roll over his funds to an IRA and have real latitude in his investment options. Seniority is not an issue. There is no matching, so no vesting. Can't ID other relevant issues, sure would appreciate any thoughts.
Guest TPA Guy Posted December 9, 2005 Posted December 9, 2005 That is absolutely OK. People do it all the time!!!
JDuns Posted December 9, 2005 Posted December 9, 2005 It has to be a bona fide termination. Any arrangement with the employer to agree to rehire the employee after a specified period could be treated by the IRS as an impermissible in-service distribution. For example in Q&A 37 from the ABA Joint Committee on Employee Benefits 2005 IRS session, the IRS stated "The IRS was not willing to bless a 30 day rule since they did not believe this situation should have a bright line rule nor to allow the plan to conclusively rely on the employer's representations regarding whether the re-employment is the subject of any pre-arranged agreement. The IRS generally expressed skeptecism regarding rehires of retired employees after a short period of time, but did not opine on what periods would be considered too short."
Guest gdburns Posted December 9, 2005 Posted December 9, 2005 It might not be a good idea. What does the plan document say about re-hires, re-entry and waiting periods? How long will he have to be unemployed? How much salary will he lose? Will the gain/benefit derived fron rolling over the 401(k) offset the loss of income and benefits? Will he be eligible for other benefits when re-hired or will there be a waiting period? Will the section 125 Cafeteria Plan allow him to re-enter in the same plan year? I expect that he would have to be unemployed for at least 90 days. I cannot see any gain from rolling over being better than the loss of salary and benefits. If the choices are so bad that this employer is allowing this employee to take this extreme measure, Why does the employer not just change the investment options? After all, it is not only this employee who is suffering, it has to be all employees who are plan participants who are suffering. What will be done for all the other participants? Will they be left out there to continue with the problem, while the employer has an option to correct the situation for all rather than just 1? Remember that it was the employer who sponsored the plan and most likely was the sole decision maker as to what was chosen. Maybe the employer should be approached about correcting the situation instaed of "gaming" it.
WDIK Posted December 9, 2005 Posted December 9, 2005 That is absolutely OK. People do it all the time!!! Should we make a list of other things people do "all the time" that may or may not be OK? ...but then again, What Do I Know?
david rigby Posted December 10, 2005 Posted December 10, 2005 Discussed several times here previously. Do a search on the Message Boards, using the word "fraud" or "sham". Take the high road, and don't have anything to do with sham terminations, or any other type of fraud. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
RCK Posted December 10, 2005 Posted December 10, 2005 mlmarvin did not specify what his (her) roll in this transaction was. So that muddies the waters a little. However I agree with everyone except TPA Guy. Sham transactions such as this are the reason that we have laws and regulations coming out our ears. In this game, the IRS makes the rules. And if you want to play, you have to agree to play by their rules. Sure if the participant quits, takes a distribution, and then reapplies in the hopes of getting a job with the employer, (s)he is entitled to a distribution --fair and square.
Guest mlmarvin Posted December 10, 2005 Posted December 10, 2005 mlmarvin did not specify what his (her) roll in this transaction was. So that muddies the waters a little. However I agree with everyone except TPA Guy. Sham transactions such as this are the reason that we have laws and regulations coming out our ears. In this game, the IRS makes the rules. And if you want to play, you have to agree to play by their rules. Sure if the participant quits, takes a distribution, and then reapplies in the hopes of getting a job with the employer, (s)he is entitled to a distribution --fair and square. Sorry for not being more clear. My role is to develop his financial plan and make investment recommendations. In the course of this, I examined his 401k and found it to be sadly lacking in performance, cost, choices, etc. I began to think a little outside the box to see if there were alternatives to simply investing in the 'least worst' choices. Since the practical effect to all involved (save for the 401k TPA) was minimal (transferring from one tax-deferred plan to another tax-deferred plan), I was comfortable in recommending the choice from an ethical perspective--as long as it was legal! Since it clearly is not, it will not be raised/recommended. Thanks much for the citation.
Guest TPA Guy Posted December 12, 2005 Posted December 12, 2005 That is absolutely OK. People do it all the time!!! Should we make a list of other things people do "all the time" that may or may not be OK? I was just stating the truth. I guess it comes down to rather or not the Plan wants to be at risk of being disqualified. The less I know the better. If a plan sponsor just sent the term form in without asking any questions or raising any concerns, more than likely nothing would be said otherwise. In light of your question, I think that you have a wonderful suggestion!!! I am sure we have all seen lots of things that we may or may not agree with but there are lots of loop holes. Maybe we should start a forum called "Is it REALLY ok to do that". Regards
WDIK Posted December 12, 2005 Posted December 12, 2005 I was just stating the truth. I don't mean to come across as belligerent, but what part(s) of your original statement do you consider to be true? ...but then again, What Do I Know?
Guest TPA Guy Posted December 12, 2005 Posted December 12, 2005 I don't mean to come across as belligerent, I know. I was not implying that this was right or even legal. I was just saying I have seen it happen several times. Most of the time the TPA does not even realize it. I will be sure to be more thorough with my responses in the future. Don't take what I wrote to be belligerent as well. Have you had a chance to look at the question I posted? I have never had this situation happen.. Thanks
WDIK Posted December 12, 2005 Posted December 12, 2005 Have you had a chance to look at the question I posted? Are you referring to the "Overstated Loan" thread? ...but then again, What Do I Know?
GBurns Posted December 12, 2005 Posted December 12, 2005 I was wondering what was "the truth"? Was it "That is absolutely OK" or was it "People do it all the time!!!"? Based on your personal experiences etc I guess it could be both in your case even if not for some of us. Since you are a fairly new poster, let me point out that not every comment needs or deserves a reply, unless, like some, you just cannot resist arguing a position to death. Like this one. Some posts are just to pull your leg, jab you in the ribs, or just to vent and are not personal, so do not think that some are attacks or belligerent even if they seem so. You will learn in time who is who (or whatever is correct) etc. But if you make a boo boo, expect to hear about it. When you make a boo boo, just fess up and move on. Yes, I did write this post all by myself, without any help or threats. George D. Burns Cost Reduction Strategies Burns and Associates, Inc www.costreductionstrategies.com(under construction) www.employeebenefitsstrategies.com(under construction)
Guest TPA Guy Posted December 13, 2005 Posted December 13, 2005 I was wondering what was "the truth"? Was it "That is absolutely OK" or was it "People do it all the time!!!"? Noted...
dmwe Posted December 15, 2005 Posted December 15, 2005 Sounds like this guy just needs a better 401(k) plan. Have his employer give me a call.
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