Confusion on 401k rollover limitations...

[Guest Zebo]

The division I'm in, in the company I work for was sold to another company. The new company has a plain 401k plan that includes loans. However, they state they cannot roll over the old 401k plan into the new 401k plan, and that it must be rolled over into an IRA (or I guess, can be left where it is since I have more than the 5K min balance). The old company's plan manager is Fidelity, the new one is TRowPrice. Both support 401k loans, but the Fidelity one is apparently some kind of esop/401k hybrid. They did say that a 401k from a previous employer *can* be rolled over into the new 401k, just not the 401k from the division that was aquired-- though in getting clarification that would appear to contain some conditions that weren't mentioned originally.

My main communication on the issue is with the HR dept., and the best I've been able to extract is that the reason we can't rollover is the original plan wasn't just a 401k, but an esop/401k combination of some kind which included employee stock benefits. Supposedly the esop/401k can't be rolled over without adulterating the new company's TRowPrice 401k in some manner-- and could somehow affect all of the new company's existing employees. The company is proposing setting up an optional 1-year loan to pay Fidelity some amount of money up front that the employee can then have deducted over the period of 1 year in order to reduce the loan as much as can be done under those circumstances.

I don't own a home, so I can't use that for a loan source, and the loan offset amount is substantial. My alternatives appear to be-- 1) get a loan from somewhere else to pay the loan offset to Fidelity, or 2) take it as a distribution and then have to pay ~50% of the amount come tax time (28% fed + 10% penalty + state tax), or 3) some combination of one of those and the 1-year loan offered by the "new" company.

However, I'm confused by a couple of things-- what do you suppose my limitations might be in rolling over the Fidelity 401k into another plan of a different employer? While not exactly a preferred option, it would appear that changing jobs at this point to a company who could accept the rollover might save me some serious $$$ here, as the loan is pretty sizable. I would think at least if I were to go self-employed (theoretically, anyway) that I could pick-and-choose my own Solo401k and roll it into that so it seems at least *possible*.

Not only that, since it is possible to transfer from one plan to another either by trustee-to-trustee (check goes direct rather than thru me), or having them send me the check and I've got 60 days to get it into a new plan-- at that point if it's just a check coming from me what connection could it even have with the original plan's characteristics-- would it not isolate the new 401k from any constraints of the original plan? Is it not at least theoretically possible to roll it into another employer's 401k temporarily, then leave them and come back to work here and rollover *that* 401k? Sure, these are kinda goofy options but I kinda get the sense here that there may be some options that have been overlooked due to lazy or overworked HR personnel who may have ended up tasked to address the problem. Yet they are going to some trouble to set up payroll-deduction loans for 1 year in an attempt to solve the problem (seems to make it more complicated, rather than fixing anything)... The company has over 100 people with outstanding loans, so I'm not the only one with this problem, though I may have one of the higher $$$ amounts and this is a small percentage of the totality of employees aquired with the division...

I suppose the 1-year loan thing is just a way to say "we did something" in response to anyone who complains, but I have this nagging feeling that there may be some reasonable options that just haven't been spotted here...

The HR guy that I'm supposed to work this out with suggested I roll it into an IRA and use that for bank loan collateral, which turns out is essentially illegal (causes an immediate distribution) so obviously the guy is not very knowledgable-- also with the acquisition he appears to be rather swamped with other work so this is not particularly a priority issue for him. I don't see any way to keep the original 401k going and paying the loan installments manually, though I suppose Fidelity would know about that if there's any way to do that and I am planning to contact them and see if they can suggest any other options.

I'm in California, so I don't know if EGGTRA or anything CA-specific is of any help-- the acquired division was uS nationwide and the new company is international but has a large US presence. If the esop portion of the Fidelity plan contributed some money to the account that needs to be tracked separately or something, how could a rollover even to an IRA work-- and rollover IRAs might be later rolled into another employer's 401k-- what kind of strings are likely attached here and how can the funds be freed of them so they can be readily rolled over???

Certainly this is something they never tell you about in 401k loan discussions-- that "leaving your job" isn't all that can trigger a loan default-- as the company changing hands can apparently do it as well.

If you have any ideas of other options I may be unaware of, whether or not these guys are doing something illegal (probably out of ignorance, rather than malice IMHO), or where I lack the understanding of what is possible in rollovers-- I'd appreciate any info you might have...

Thanks,

-- Z