employer moved account to a riskier fund

[Guest orm]

Here is my situation:

I have opened a 401K account with my current company.

When opened, I signed a form saying I want to have 100% of it in moneymarket. It has been like that for a year.

A month ago, the company deceided to move to a different provider. After the swap, my money found its way to 85% stock fund.

Although there were emails and meetings I did not attend them and I was unaware they moved the account to a riskier fund without my approval.

In the past month (without me knowing) the account has suffered heavy losses of 25%.

I know that when changing providers, the original funds are usually swapped into similar funds with the new provider , but I don't know if it is a rule that must be followed.

In a Need for advice

[J Simmons]

Ouch!

Did you receive any notice of the 'mapping' of your funds into the 85% stock fund if you did not affirmatively elect your benefits be invested in some other investment option available through the new provider?

[K2retire]

It sounds like your new provider's default fund is a Qualified Default Investment Alternative. That is something relatively new that the Department of Labor has provided for as a better long term choice than a money market fund. Unfortunately, for the past few months the money market would have been the better choice.

If you had attended the meetings, or heeded the e-mails, you might have been able to choose a money market fund instead of the stock fund. You should be able to make a switch going forward, but that may not be the wisest choice in this situation. You need the help of a financial adviser who can help you understand your options.

[Guest orm]

Thank guys for your replays!

after the fact I did check my emails and the notice for what is about to happen was there. I was irresponsible and did not pay attention. I took it for granted that my exposure for risk can not be increased without my explicit request.

The reason it feels so wrong is that this was not a case of enrolling for a fresh 401k plan, there was already an old one in place with explicit signed direction of how to handle the contributions.

You are right about the default fund, K2retire, It was done according to an age group).

Maybe you can help me out about the financial adviser, I am not sure who could help me with such an issue.

[J Simmons]

I'm not sure that it should have been defaulted into the QDIA (qualified default investment alternative). You had an affirmative direction of investment into a money market fund. They should have tried to map you to the closest thing to what your affirmative investment directive was. That is, if the new provider has a money market fund option, that's where your investments should have been mapped. QDIAs are only for EEs that have not directed the investment of their benefits.

Also, I'm not so sure that the e-mails fulfilled the notice requirement on the plan administrator. Had you ever given the plan administrator permission to provide you notices via e-mail?

[K2retire]

John is correct that they may have been wrong to put you into the QDIA. I'm not surprised that they did, because it is often impossible for the service provider to tell if someone is in the money market fund because they actively chose to be there or because it was the default for someone who never made an election. The employer or other plan fiduciary should be able to tell and instruct the investment folks accordingly.

Finding a financial adviser is not an easy task. Start by asking people you trust for recommendations. Interview candidates, and ask up front how they get paid. If they get paid by the companies they recommend to you, then you can be certain that will color their recommendations. You want someone who is unbiased. That will probably mean you have to pay them an hourly fee for the work they do for you.

Good luck!

[ERISAnut]

You have a case. There is a distinct difference in investing prospective contributions into QDIA when there are no elections. However, to move funds that are already inside a particular investment into a more risky investment is beyond the scope of any reliance that the safe harbors offer.

Notice the difference. If funds are not yet deposited and you fail to make an election, then the employer may default the funds. However, you had already made your choice of the fixed fund. There is no authority for them to arbitrarily move existing balances into any other option without your expressed consent.

You should sue. Just call your local Department of Labor. There will be a local representative that would be happy to view your case. Any audit will reveal a fact pattern where it may have been in the best interested of the financial representative to have those funds moved into their 'target allocation option' for your age group. However, that is not appropriate for balances that are already existing inside of a fixed fund. While this type of case is civil in nature, you have a legitimate complaint and should be awarded damages.

[J Simmons]

I'm not sure that it should have been defaulted into the QDIA (qualified default investment alternative). You had an affirmative direction of investment into a money market fund. They should have tried to map you to the closest thing to what your affirmative investment directive was. That is, if the new provider has a money market fund option, that's where your investments should have been mapped. QDIAs are only for EEs that have not directed the investment of their benefits.

Look at ERISA § 404©(4)©--if the switch of the investment of your plan benefits from your directed money market fund investment to the one with 85% stocks is not a 'qualified change in investment options', then the plan fiduciaries are possibly liable to you, they would have no 404© protection.

Also, I'm not so sure that the e-mails fulfilled the notice requirement on the plan administrator. Had you ever given the plan administrator permission to provide you notices via e-mail?

DoL Regs §2520.104b-1©(2)(ii).

[Guest orm]

Thank you all for all your responses. You helped me immensely.

I will try to avoid suing if I can, but it is important to know that there is a case here and it is an option if nothing works.

J Simmons, I followed your advice and tried to check the law. I could not find the latest ERISA or DOL text; all I found seems to be out of date. Could you please direct me to the source?

And to your question, I never permitted anyone for notifications by email. I understand that without that specific permission the emails I received do not qualify as notices at all?

I did find a pdf file online: http://www.morganlewis.com/pubs/EB_Contrib..._LF_22aug06.pdf

Describing the ERISA 404c rules:

“Fiduciary safe harbors for mapping investments and blackout periods: The first of these new

fiduciary safe harbors applies to a “qualified change in investment options” in which an account is reallocated to new investment options with characteristics, including risk and rate of return, that are

similar to the characteristics of the corresponding investment options that were available before the

reallocation. The safe harbor requires notice to participants between 30 and 60 days before the change,

comparing the old and new investment options and explaining that, absent a participant investment

direction to the contrary, the participant’s account will be invested in new options with characteristics

reasonably similar to the old options. The safe harbor applies if the prior investment was a result of

participant direction.”

Since a direction does exist for the prior investment, the 404C protection should not apply

[Guest Sieve]

A prior direction does exist, so the safe harbor still could apply. However, the reason it does not apply, the prior posters believe, is because the mapping was not done to an investment whose "stated characteristics . . . including characteristics relating to risk and rate of return, are, as of immediately after the change, reasonably similar to those of the existing investment options as of immediately before the change." (ERISA Section 404©(4)(B)(ii).)

Here is the text of ERISA Section 404©(4):

''(4)(A) In any case in which a qualified change in investment options occurs in connection with an individual account plan, a participant or beneficiary shall not be treated for purposes of paragraph (1) as not exercising control over the assets in his account in connection with such change if the requirements of subparagraph © are met in connection with such change.

''(B) For purposes of subparagraph (A), the term 'qualified change in investment options' means, in connection with an individual account plan, a change in the investment options offered to the participant or beneficiary under the terms of the plan, under which—

''(i) the account of the participant or beneficiary is reallocated among one or more remaining or new investment options which are offered in lieu of one or more investment options offered immediately prior to the effective date of the change, and

''(ii) the stated characteristics of the remaining or new investment options provided under clause (i), including characteristics relating to risk and rate of return, are, as of immediately after the change, reasonably similar to those of the existing investment options as of immediately before the change.

''© The requirements of this subparagraph are met in connection with a qualified change in investment options if—

''(i) at least 30 days and no more than 60 days prior to the effective date of the change, the plan administrator furnishes written notice of the change to the participants and beneficiaries, including information comparing the existing and new investment options and an explanation that, in the absence of affirmative investment instructions from the participant or beneficiary to the contrary, the account of the participant or beneficiary will be invested in the manner described in subparagraph (B),

''(ii) the participant or beneficiary has not provided to the plan administrator, in advance of the effective date of the change, affirmative investment instructions contrary to the change, and

"

(iii) the investments under the plan of the participant or beneficiary as in effect immediately prior to the effective date of the change were the product of the exercise by such participant or beneficiary of control over the assets of the account within the meaning of paragraph (1).''

[Bird]

I don't believe trustees are under any obligation to map funds. If they say, in effect, "we're starting over and if you don't make an affirmative elective you're going into the default" then that is ok. The discussion to this point seems to assume that mapping is required or assumed and I don't think that's the case.

I think the focus should be on how how the change was made and the notices that were given.

[Guest CinC]

On the issue of whether or not electronic communication was correct, the employer is NOT necessarily required to obtain participant consent for electronic communication if the employee has the ability to effectively access electronic documents at the work location and if the employee uses a computer as an integral part of his/her duties. See the DOL regs at 2520.104b-1©. The employer is supposed to use measures to assure actual receipt (return receipt or notice of undeliverable mail) - unfortunately, I'm not sure this extends to assuring the mail was actually opened.

[GBurns]

"if the employee has the ability to effectively access electronic documents at the work location and if the employee uses a computer as an integral part of his/her duties" is an extremely subjective standard to use. What many employers think of as being the status quo is sometimes just theory. In reality computer access to electronic communications is sometimes limited and employee knowledge, awareness and use is ineffective.

orm

If I were you, I would summarize what you have learned here so far, that is in your favour, support that with excerpted cites and make a presentation to whomever is in authority asking that the situation be corrected in a mutually satisfactory manner. Bearing in mind, but not saying so, that you are mainly at fault for not having read the notices etc.

[J Simmons]

I don't believe trustees are under any obligation to map funds. If they say, in effect, "we're starting over and if you don't make an affirmative elective you're going into the default" then that is ok. The discussion to this point seems to assume that mapping is required or assumed and I don't think that's the case.

I think the focus should be on how how the change was made and the notices that were given.

I agree, Bird, that failure to follow the new 404©(4)© mapping procedures does not necessarily equate to fiduciary liability. But the fiduciaries' failure to follow 404©(4)© opens the door of possible liability. 404©(4)© provides a safe harbor from liability for those fiduciaries that follow it.

Barring the application of the 404©(4)© safe harbor, plan fiduciaries that move an EE's plan benefits from arguably the most conservative investment option made at that EE's directive, into investments with 85% stocks without the benefit of a new, affirmative directive from the EE would seem to have some answering to do to that EE--maybe liability to restore the benefits to what they would have been had the investments remained in money market funds.

[J Simmons]

"if the employee has the ability to effectively access electronic documents at the work location and if the employee uses a computer as an integral part of his/her duties" is an extremely subjective standard to use. What many employers think of as being the status quo is sometimes just theory. In reality computer access to electronic communications is sometimes limited and employee knowledge, awareness and use is ineffective.

orm

If I were you, I would summarize what you have learned here so far, that is in your favour, support that with excerpted cites and make a presentation to whomever is in authority asking that the situation be corrected in a mutually satisfactory manner. Bearing in mind, but not saying so, that you are mainly at fault for not having read the notices etc.

I think both of George's comments above are sage. The very fact that orm did not 'notice' the e-mail notices until too late begs for the consent from the EE in the first place. Many people yet do not treat e-mail with the same importance and urgency as they do hardcopy mail.

[Guest CinC]

GBurns wrote:

"if the employee has the ability to effectively access electronic documents at the work location and if the employee uses a computer as an integral part of his/her duties" is an extremely subjective standard to use.

I honestly don't see that as all that subjective. These days many or most of us who are desk jockeys (as opposed, e.g., to an employee who works on an assembly line) use an employer-provided computer as a regular part of our jobs; I think it's reasonable to say that the computer is an integral part of our jobs. But to clarify: The DOL specified in the preamble to the regs that what they mean is that the employee is"expected to regularly access the employer's electronic information system...." They rejected suggestions made in comments that a kiosk "available" to the employee in a common area in the workplace would not satisfy the "integral part" of the duties requirement (which seems reasonably obvious to me). Does that make it less subjective to you?

In my experience, employers who use electronic communications and have not obtained the employees' consent to do so have given consideration to these rules. As I noted before, it's not clear that the DOL would require the employer obtain proof that the employee actually opened the mail - although ideally I think they should - but the fact is that the employer has no obligation to assure that employees actually read the hard copies of SPDs and other communication handed to them, either.

[Kevin C]

The majority opinion seems to be that the qualified default investment alternative rules don't apply here because of the previous investment election. I disagree. The preamble of the final QDIA regs addresses their application after a change in service providers:

Application of Final Rule to Circumstances Other Than Automatic Enrollment

Several commenters requested clarification on the extent to which the fiduciary relief provided by the final regulation will be available to plan fiduciaries for assets that are invested in a qualified default investment alternative on behalf of participants and beneficiaries in circumstances other than automatic enrollment. Consistent with the views expressed concerning the scope of the relief provided by the proposed regulation, it is the view of the Department that nothing in the final regulation limits the application of the fiduciary relief to investments made only on behalf of participants who are automatically enrolled in their plan. Like the proposal, the final regulation applies to situations beyond automatic enrollment. Examples of such situations include: the failure of a participant or beneficiary to provide investment direction following the elimination of an investment alternative or a change in service provider, the failure of a participant or beneficiary to provide investment instruction following a rollover from another plan, and any other failure of a participant to provide investment instruction. Whenever a participant or beneficiary has the opportunity to direct the investment of assets in his or her account, but does not direct the investment of such assets, plan fiduciaries may avail themselves of the relief provided by this final regulation, so long as all of its conditions have been satisfied.

The issue becomes whether or not the employer properly followed the QDIA rules. It's been a while since I've read the electronic disclosure rules, so I won't join that discussion.

[GBurns]

CinC

Most employees are not desk jockeys.

I doubt that most employees even have a desk and thus most employees would not have a terminal. I doubt that most have an email account on the job website. I also wonder How they would even know that there is email or something to look at.

I draw my reaction from experiences over the last few years. I have had administrators of large hospitals and schools who thought that since there was an email account for the employee it meant that the employee knew how to access, had use of a terminal, the terminal allowed access, only to find out that only a few met those conditions.

Allthough there are many computer terminals in a hospital not all can access email. The same applies to many many other types of organizations.

I even have had experiences with fortune 1000 companies where intercompany emails from executive to executive were being filtered. I hate to tell you what happened sometimes with broadcast emails.

So since most employees have no desk and no terminal, assuming they have an email account and know of the email, it is subjective.

[Bill Presson]

Most employees are not desk jockeys.

I doubt that most employees even have a desk and thus most employees would not have a terminal. I doubt that most have an email account on the job website. I also wonder How they would even know that there is email or something to look at.

I draw my reaction from experiences over the last few years. I have had administrators of large hospitals and schools who thought that since there was an email account for the employee it meant that the employee knew how to access, had use of a terminal, the terminal allowed access, only to find out that only a few met those conditions.

Allthough there are many computer terminals in a hospital not all can access email. The same applies to many many other types of organizations.

I even have had experiences with fortune 1000 companies where intercompany emails from executive to executive were being filtered. I hate to tell you what happened sometimes with broadcast emails.

So since most employees have no desk and no terminal, assuming they have an email account and know of the email, it is subjective.

But in this case he said he got emails and was asked to attend meetings and ignored them all. I think it's time for him to put on his big boy pants and start paying attention.

[Guest orm]

Kevin C, after some research of my own I could not find anything to contradict your point.

It seems that the new regulations give the “fiduciary” the right to choose a plan, regardless of my old one.

You can find some interesting points in http://www.401khelpcenter.com/401k/whitehouse_qdia.html my case is similar to the widow's one.

In http://www.kilpatrickstockton.com/publicat...ert.aspx?ID=187 are the highlights for what is a QDIA.

Unfortunately it is seems to me that the new 404©(5) act has covered my case.

Thank you all for your help. Still hoping there is something we missed.

[GBurns]

It should not matter if something is missed. You have no idea what they know and think.

It could be that your display of "knowledge" etc prevails over any uncertainty they might have. Righteous indignation influences people.

It could be that they made serious errors with others and want to settle the issue before it gets out of hand. Maybe they do not want you to rock the boat.

It could be that some senior executives have been affected in the same way and they do not know how many non-execs have also been affected. They might want to atone.

You just do not know, so why prejudge and give up. It is the squeaky wheel that gets the oil.