401(k) changes: A sound move for our company?

[Guest afcjags]

I currently work for a publicly traded company who funds their employer 401(k) contribution with a 50% match in company stock. My company is currently evaluating the feasibility of enrolling in an HR outsourcing service that will include the transfer of our existing 401(k) to the plan provided by the outsourced service.

This new organization who will no longer allow the match to be funded via company stock and has recommended a plan where they will accept the stock match, sell it for a fee of about .05%, and then transfer the proceeds into each respect employee's accounts.

Does this sound like a very bad idea to anyone else?

Is there someone out there that could help me to understand the goods and the bads of this type of arrangement before we jump into a potentially bad situation????

HELP!

[four01kman]

From a plan participant perspective, generally it sounds like a good deal. By reducing or eliminating company stock as an investment option, you reduce your investment risk. Remember you already rely on the company for your day-to-day income. Depending on the total amount of shares involved, 5 (.05%) basis points may be an acceptable charge for liquidation (providing there are no other sales costs).

From an employer point-of-view, matching contributions in employer stock allow the employer to make a "cashless" contribution, and take a tax deduction. Additionally, employee who own company stock generally feel more of an "ownership" stance with their company.

[Steelerfan]

So your company wants to pay an outside vendor a fee to sell stock that the company"contributes" to a plan of the outside vendor. Sounds fishy to me--like an Enron-derived planning tool to minimize the employees risk of owning employer stock, while retaining the "savings" of making the contributions in stock. Maybe there is some real benefit to that, but paying someone to liquidate your own stock seems stupid to me. You'd have to look at the other fees they would charge. Also, this vendor would have to be running a multiple employer plan. You would have a lot of due diligence ahead of you to be sure they are running the plan properly with respect to other employers and filing the plan properly, etc.

Also, maybe transferring assets to the plan is a bad idea. What about just freezing the current plan and give the other plan a test run?

[masteff]

afcjags - Is there a reason the company wants to make the match in stock versus cash? Is it the "cashless" nature of the transaction as four01kman alludes to? Because as four01kman also points out, a reason for stock match is to motivate employees to add to the company's performance, but if that stock is cashed out before it hits their accounts, it becomes a nonrelevant factor.

[Guest fender5150]

This sounds like a bad deal for everyone except the New Investment Manager. Forgive the cliche; but I wonder if a friend of your CEO owns the new organization. Of course I'm making an assumption that may not be true - that employees could sell company shares at thier discretion. Assuming that's true, this is a really bad deal.

Here's an opinion for what it's worth:

If management are the majority owners of the company, they have the right to do what they want. Since this is a publicly traded company, that's probably not the case; so they should be accountable to the shareholders - the true owners of the company.

IE: The owner has the right to run the company in the ground if she/he wants. A manager should be accountable to the owner(s), and run the company in accordance with thier best interest.

It's just a theory!

[jpod]

AFCJAGS: No offense, but at the risk of repeating something which someone else may have already said or implied, it boggles my mind that you are trying to come to grips with this issue through a message board. Where are your Company's lawyers???