Privacy and safety re: 401k Loan

[interestedparty]

I am an employee of a large tech company. I have worked there over 5 years and have accumulated quite a bit of cash in my 401k. I have decided to take out a loan for a very favorable real estate transaction.

In looking into this process, I have been informed that I must submit a form to the third party (non-financial) 401k administrator for my firm. I have to obtain forms from the financial 401k firm, then submit them to the non-financial 401k firm, who blesses them and sends it to the financial firm, who sends it back to me.

This is annoying but I guess I can live with it.

What has me very worried is that the actual check, which will be large as it relates to real-estate (over 10k), is sent to my non-financial 401k adminstrator first, then from them, to me.

Is this legal? It must be. If so, why? Why should anyone else but the financial institution know what my loan status is? Why should my check be sent to anyone but me? What about identity theft - isn't this situation begging for it?

What possible value could there be in sending checks across country to administrators? This is my money.

[Mike Preston]

All I can tell you is that it is SOP. Typically, the non-financial administrative firm is responsible for keeping track of all things administrative and procedural. We (yes, my firm is a non-financial administrative firm) have learned through bitter experience to insert ourselves at every step to ensure that things are done properly. What can go wrong? Gosh, I could write a book (and I may just do that someday).

As far as identity theft goes, the non-financial administrative firm already knows just about everything about you. It needs to in order to accurately prepare governmental filings.

You should, if you had a peek at all the things that could and do go wrong, be thankful that the non-financial administrative firm is being pro-active and inserting themselves at a point in time where a correction, if it needs to be made, can be done before a problem develops.

I admit my opinion is biased, so I welcome others offering you a different viewpoint.

[interestedparty]

Thanks for your viewpoint.

All I know is, I'm sending 10K to a group of 10 or so employees who probably make won't see that amount of money in aggregate their whole lives, who have every type of information about me, and who could disappear with my money and identity in a heartbeat.

As opposed to the simple expediency of having my 401k financial firm send me my money directly, them to me. What a concept.

I just don't see any advantage to this "insertion." If the check gets lost enroute, cancel and re-issue. But identity theft, that is months perhaps years of redress. Weighing one against the other - this particular SOP makes absolutely no sense.

Unfortunately these processes, which are clearly established to benefit the corporation and not the individual they are "serving" all too often become in hind-sight ridiculously obvious. I just hope it is not my particular check / case that shows this industry how far off common sense this particular beaten path has strayed. If you MUST justify additional fees and money and hiring for merely wasting time, do so in a way that doesn't invite identity theft on a platter.

[interestedparty]

As far as governmental filings - there are non whatsoever for a 401k loan. So that argument doesn't fly. It is only if a loan is in default that taxes are involved. The financial institution is the source of that info - not the non-financial. So there is no value in their involvement whatsoever, unless you are of the belief that financial institutions are completely unable to verify forms. That is a stretch.

[hr for me]

I love when people who have absolutely no experience in the financial 401k business/processes decide they know the best way to handle 401k transactions and the laws that surround them. Not sure why you even came on here to ask. What you are stating is standard operating procedures for most employers and most 401k plans. There are protections there that you might not see or value, but it doesn't mean they aren't there and that there is no value to you, your employer or your assets.

And honestly $10k in aggregate is nothing for most of these employees. They see much larger account balances/distributions and personal information than that. $10k won't even get them across a border nor sustain them for very long. Their annual bonuses might even be larger than that...mine were 20+ years ago!

[Mike Preston]

interestedparty, thanks for the giggles. I guess you didn't get the part about things that can go wrong, huh? But you'll have to pay for the book, when and if it comes out, to educate yourself.

I can feel your frustration and am sorry things aren't going the way you think they should.

But I'm intrigued by your assertion that a check for a measly 10 grand or even 20 grand written on a financial institution's check stock (so the ABA routing number and account number aren't related to you in the slightest) somehow constitutes an invitation to identity theft. You say you work for a tech company, so feel free to cite chapter and verse, as any self-respecting techie might, as to how one can invite identity theft in this scenario.

BTW, I totally agree with you that, in a perfect world, the check would go directly from the financial institution to you. It isn't a perfect world. For that to happen, the financial institution would have to take procedural control over the disbursement. Most won't do that. Most won't confirm that the amount requested satisfies the plan's provisions [multiple loans, blackout rules, correct source, etc.], or the IRS limits. They won't confirm that the participant's spouse hasn't filed a Domestic Relations Order with the plan that could get the employee requesting the loan in trouble with the court. There are other things, but I'm sure you will just pooh-pooh them all as not being relevant to your situation and, in fact, you may be right. But unless the financial institution is willing to take responsibility for confirming those things (and others), it is quite logical that the non-financial administrative firm would provide those services.

I do understand your position that it would be better for the procedural requirements to be certified by the non-financial administrative firm (to the financial institution) and the financial institution then mailing the check directly to the participant. As I said, it many cases it isn't a perfect world. There are good reasons for things happening the way they are, but your stream-of-consciousness diatribe doesn't really make me want to go into a lot of detail.

And I do hope you understand how far off the mark your retort regarding the information on 401(k) loans having no impact on governmental filings was. I was saying that non-financial administrative firms routinely collect information that would make identity theft quite easy. I was saying that in the context of NOT NEEDING ANYTHING WITH RESPECT TO THE LOAN. That is, they already have that information on hand. So, any information they would get from receiving the check has nothing to do with one of their employees having the ability to engage in identity theft.

As hr for me asked: why are you here? If it is to engage in a civilized discussion I'm afraid you have missed the mark by a wide margin.

[ESOP Guy]

I probability should not mention this but just to be clear interestedparty you are worried about some check for 10K?

Those people handling your check get your annual payroll data. They know your SSN, how much you make a year, they most likely know your address. I could go on.

I know the pay of every employee from CEO on down for every company I help run their retirement plans. (I work on exclusively on ESOPs now but got my start in 401(k) work.) I know their SSN also. If I am going to commit a crime with this information it isn't going to be from some guy who thinks $10k is serious money.

All this information is needed to help your company run the 401(k) plan. Done wrong and someone is going to pay large fines to the IRS.

I would add if the loan is set up wrong that non-taxable event turns into a fully taxable distribution. If you are under 59.5 you would get to pay the 10% penalty for taking a distribution before you are 59.5. If the payment back to the 401(k) loan is not done right it becomes a taxable distribution. More can go wrong then you think. The end results can have a bigger impact then you think.

Lastly, like others I find it funny about the 10k. So you really think the people who work on your company's 401(k) plan make less then 10k/year? That is less then $5/hour.

[Hojo]

I was going to write about the identity theft part, but ESOP guy beat me to it. Seriously, you're worried about identity theft because these people see a check with your name on it? If they wanted to really steal your identity they already have all of the info to do that without a measly check for $10k. In addition, there are probably more safeguards in place at the "non-financial" TPA than at your financial institution.

[My 2 cents]

It is almost certain that the non-financial administrators know your SSN, your pay, your date of birth and your address, They also, without question, know exactly how much money is in your 401(k) account at any given moment. It is also almost certain that they have the same information about people whose 401(k) plans hold hundreds of thousands of dollars or even millions of dollars. They are also almost certainly quite knowledgeable about legal constraints and procedures intended to protect the information to which they have access from those who would use it for nefarious purposes.

Do not be concerned about the non-financial administrators finding out about the loan you are taking out.

Good luck on your real estate investment! May it thrive.

[ESOP Guy]

Yes, just to be clear. My last comment not withstanding I wish you no ill will. I hope your fears aren't realized and your investment goes well.

[BG5150]

Thanks for your viewpoint.

All I know is, I'm sending 10K to a group of 10 or so employees who probably make won't see that amount of money in aggregate their whole lives...

This made me giggle. Where is this administration firm? North Korea or something?

[interestedparty]

Well, first of all, thanks for the other viewpoint.

I must say in all fairness that I have interacted several more times with my non-financial 401k administrator and so far have been nothing but impressed with the individuals there, their knowledge and their responsiveness. Kudos to those that represent this industry.

I remain unconvinced however that there should be not be a separation from the administration of the spousal consent (and whatever mysterious background checking must occur) and the actual sending of the check to the 401k non-financial administrator. Although I may not be a part of the tribe, none of these arguments above show me a reason that the financial institution can't obtain a clearance from the non-financial 401k by sending me the forms, doing the due diligence, and then arranging for the financial 401k to send me the check directly. As a matter of fact, my financial institution said that some companies do manage their 401k loans for their employees that way.

I remain unconvinced as well that receiving a direct check for a large amount of money sent directly to a group of people with all the financial details of a customer- remains wise. (This is well over 10k by the way I just didn't want to get into it). No matter how much they make.

Let's look it from the other way. Suppose an individual decided to cash that check. He or she would have many tools at their disposal to make it very difficult to trace. I wouldn't wish that situation on my worst enemy. It seems a simple pre-caution to simply not provide that opportunity or temptation.

SOP doesn't trump common sense

[BG5150]

Different firms handle these tranactions in several different ways.

Some have the check sent directly to the particiapnt.

Some have the check sent directly to the company.

Some have the check sent to the "non-financial" administrator for futherance to the participant.

Some have the check sent to the "non-financial" administrator for futherance to the company for furtherance to the participant.

Some firms even use a combination of the above.

At my last job, we left it up to the plan sponsor.

Each firm has its own reasons for its procedures.

[hr for me]

At most your check is for $50k. Again these admins deal with checks much much much larger than those. For example, my DH changed jobs and we asked for a rollover check sent directly to us for much more than your loan. That check never made it to us and it was coming directly from the 401k financial institution (not a Third party admin TPA) It was never cashed that we know of. We were re-issued another check within just a few business days and had no adverse repercussions from it personally. I have no idea whether anyone tried to cash the first check or not. All the check really had was my DH's name -- none of our account info, not his SSN, etc. If an employee of that firm wanted to scam money, that's definitely NOT the way to do it.

And honestly it's a lot harder to go cash a $10k+K check than you seem to think. Any bank will record what account it goes into and will record a deposit to the feds/IRS. They might get a small amount back in cash but most banks won't cash for non-account-holders.

So don't just think it is because of a TPA that that your check could get lost/stolen.

[austin3515]

I didn't read ALL of these threads, but personally I am allergic to other people's money. I want nothing to do with it. Therefore, the idea of receiving someone's check even for $500 makes me cringe. We see everything we need to before the loan is approved in the first place. Once the approvals are obtained, send the check right to the participant.

Part of my feeling is based on my allergy, but the other more practical consideration is that interestdparty makes a reasonable complaint. Why is my money floating across the country to multiple parties which incresaes the chances for, at a minimum unnecessary delay, at a maximum loss of the check. I think theft is remote, but sure, why not? Are there not criminals out there?

[interestedparty]

This is probably my final post on this topic.

I am not unaware or disrespectful of the value of this industry

The more I consider this the more I believe this is a regulatory loophole that eventually will bite someone and some company

I would run from this as a firm

I have been thinking about built in systemic protections regarding other large cash transactions in banking and other parties and I can't think of any process that leaves the consumer so unprotected

In credit cards there are protections for even the smallest unauthorized transactions. Same for banking - no regulator would accept a process whereby groups of individuals with all this information handle live checks without many systemic checks and balances

These checks have no systemic protections and simply should not be handled by a non financial institution

There is simply no upside and many risks which is why the financial industry is so regulated

Puzzles and alarms me - as it should all of us

As this is an optional process I hope I have influenced some partipants of this forum to restructure this process to avoid direct handling of checks if they have the power to do so

Thanks for your consideration and for what I am sure is excellent service on behalf of your customers

[BigMitch]

“Let's look it from the other way. Suppose an individual decided to cash that check. He or she would have many tools at their disposal to make it very difficult to trace.”

LOL I’m in wealth management, handle checks all the time. I’ve never seen one that fails to be addressed to the account holder’s name. 

Its not like they send a check that reads “Bearer”. For someone to walk into a capital one branch and cash it by signing. Come on man. 

These people, me for my clients, you already trust them with every piece of relevant information on you. SSN DOB Address etc. 

Why don’t you focus on the one thing you should be worried about in this scenario: removing funds from the market for this real estate adventure. Anyone pitching you at a seminar for a 10k investment - think - why come to me? Because the smart money has said “I pass”