401K Plan Termination

[Guest dmorgan]

My former employer tells me they want to terminate the 401K plan with the existing plan administrator and move the money to another plan administrator.

What are my options? Can I keep my money with the existing plan administrator? If I roll my money out of the existing plan now, the plan administrator claims they will charge me a sizeable back end fee.

Even if my former employer leaves the existing plan, can I just keep my money in the plan for the next few years until I don't have to pay the back end fee?

My employee retirement plan summary does not mention anything about back end fees. It says my money is nonforfeitable. Will my employer have to absorb this back end fee, and make available the full amount of money in my part of the plan?

What recourse do I have if the former employer takes the back end fee out of my part of the plan. Do I go after the former employer or the plan administrator?

Thank you for responding.

[Guest Dook]

From your post it sounds like the firm which is administering the plan also holds the plan assets. Also, there is a back end fee imposed on any funds that leave the plan and the fee will decrease and/or go away in the future.

1. You cannot separate your money from the rest of the plan unless you take a distribution. If the plan assets are moved, your balance will move with it and incurr charges.

2. Your former employer has the right to move the plan assets as they see fit. They are under no obligation to (but may) make up for the back end charges. Their actions can however, be challenged on the basis that they were not in the best interests of the plan participants. On this basis you could bring action against the Plan Trustee for losses as a result of the move (time consuming, expensive).

I would suggest that you contact your former employer and try to find out why they are moving the plan. You might be able to convince them otherwise based on what it would cost in fees. Or they might be able to convince you of the benefits of the move. If you can find out where they are moving the plan to, you might conclude that due to a move to a better performing asset, in the long run you will be better off, even though you incurr charges now.

[Guest kac1214]

The money will have to leave the plan due to termination. Typically, the back end load (or cdsc) is applied upon contract termination so when the plan assets are sold, the cdsc is applied.

If your ER absorbs the charge, there can be discrimination questions since higher paid people have higher balances, they recieve higher percentage of reimbursement.

Try contacting the investment firm and see if you roll your distribution to them, will they reimburse your CDSC. Be sure that you are provided the amount of cdsc applied or the how to calculate and get it in writing prior to rolling over. Also find out if your IRA is subject to another CDSC

Hope this helps