Former employee has significant loss after funds changed without notic

[Guest KGibson]

Fund choices changed in company plan, and no notification was sent to former employee. The funds rolled into a default account which was a bond. He had been in a growth fund. The former employee had a significant loss and is very upset. Any violations?

[KIP KRAUS]

Did any other former employee fail to get notification?

Doesn't sound like standard procedure for a plan not to notify former employees of this important change.

[Erik Read]

Don't know if I would specifically say there was a violation. I think there are more facts and circumstance to review. First - when are distribution made available to former participants? If the participant had distribution paperwork given at the time of separation, you have another set of issues.

Second - when were all ee's notified of the change in funds, and was it a change in fund(s) or vendor?

Third would be how the document states to handle "default" fund choices for participants, in this case, since the funds were moved, and the changes weren't "mapped" the default fund would have been selected by the recordkeeper.

Fourth does/did the participant have access on a 24/7 basis to the account balance via either a VRU or web?

Big can of worms. I think I'd have my fiduciary's for the plan review and brought up to speed ASAP.

[Guest KGibson]

I have been gathering answers and finally have a few. He is looking for the SPD, but says he did not get any info upon termination or following termination.

This was a change in funds AND vendors, and as far as he is aware, none of the other past employees were notified. A memo may have been posted internally, but that was the extent of notification.

There is 24/7 access through the internet and 800 #'s with the new provider, but he is not aware if the old vendor had 24/7 access.

What he is wanting, is for the company to make his account whole with the $1,000 he lost. Any suggestions of how to approach this when speaking to the company?

[Guest]

Since your client is the employer, I think you need to discuss the specifics directly with them. I would get a copy of the investment policy and a copy of the meeting minutes where the investments were changed from the old to the new. This would show documentation on why and when the funds were changed.

If your firm did not provide notice to the current and former employees about the investment change, then you will want to look to the employer again for any type of notification they may have given to the participants in the plan. If the employer does not have any documentation indicating why the changes were made nor provide notice to the employees, then there could be lots of problems. Was your firm handling the plan at the time the investments were changed? What does your service agreement indicate are your responsibilities with these types of changes?

Good luck

[Guest KGibson]

I do not work for the company. The former employee is a friend and asked my opinion because he wants to address this issue with the employer. I told him that I would help to find as many areas that may be concerns and I suggested that he does his own research as well. I am simply providing information so that he can make an informed decision about his concern. There are certainly a LOT of worms in this can!

[alanm]

I think you have a breach of fiduciary responsibility to notify participants. The question is what are the damages.

The DOL is going to take the position that the highest yielding fund available after the change is the benchmark. They will probably relax to the point of allowing mapping to a similar type fund to the one that existed before liquidation, if you argue with them. The notice is required or a breach occurs. I would go ahead and pay them before they call the DOL, which will create an audit.

[Guest KGibson]

I also recommended that he should research the fund his money WAS in and see what the performance would have been. I think if he would have had a significant gain, he has a position to take, but if the loss would have been even greater, his position is much weaker. Thanks for your comments.

[Erik Read]

Okay - sounds like we're getting somewhere now. So - he never received notice (that we know of), and he didn't have knowledge of access with the previous vendor, so he wouldn't be able to track his account daily if it were still in the original investments.

Calculation should be - the better of the original investment, or the highest yeilding investment after the transfer, annualized and credited to his account for the period in question.

That ought to suffice for your friend, the rest of the issues are between his employere and the recordkeepers.