401K Held Hostage

First let me say I am not a benefits manager, I am in operations.  I left my employer in March of 2017.  The company has well over 1000 employees and has locations in 3 states currently.  When I started my with my new employer, I attempted to rollover my previous 401k.  I was informed by the administrator that my 401K would not be available for me to rollover or do anything with the account outside of the plan until Dec. 31, 2018.  Not sure why this is the case and was wondering if anyone has ever heard of this in any plans.

It was very common not to long ago.

It is less common now.

There is nothing illegal about it if the plan has a provision that termination distributions are not made until the anniversary of your separation from service. In fact the plan, if written as such, can restrict distributions until you reach retirement age but that's very rare in a 401(k) Plan.

1 minute ago, MarkGAllen said:

First let me say I am not a benefits manager, I am in operations.  I left my employer in March of 2017.  The company has well over 1000 employees and has locations in 3 states currently.  When I started my with my new employer, I attempted to rollover my previous 401k.  I was informed by the administrator that my 401K would not be available for me to rollover or do anything with the account outside of the plan until Dec. 31, 2018.  Not sure why this is the case and was wondering if anyone has ever heard of this in any plans.

Yes. It is less common nowadays with daily valued plans, but  plans that are only valued once a year (usually the last day of the plan year) often restrict distributions until after a certain time has passed.  The reasoning is that you are owed earnings for 2017 which would be calculated as of the last day of the plan year (lets say December 31).  That calculation is done sometime 2018.  the deposit of any 2017 contributions could be made as late as September 2018 if it is a calendar year plan.  

@MarkGAllen just curious, do you make your own investment decisions in the plan?

Thank you.  I spoke with the company that manages the plan and they shared it is the only plan they have that has this provision.

So the provision can be written in for any length of time from leaving the company.  It is a family run business and the family is involved in every aspect.  

Yes I can direct investments among the funds that are available.

You should read the Summary Plan Description (SPD) as it relates to the timing of distributions.  If you do not have a copy, you can request it from the Plan Administrator.

I will request a copy.  I have requested twice already and have not received yet.

Also, I am curious did they really say it would be 12/31/2018 when you would get paid or "no later than" 12/31/2018?  I would find the idea of paying you exactly on the last day of the year really odd but saying it will be some time in 2018 more normal.  It just could be they aren't 100% sure when in 2018 and so they are giving you the latest date it will be done by. 

The answer I received from the company managing the plan stated that they would "get a list of eligible employees and start sending notices on 12/31/18."  So if someone leaves the company on 12/31/17 they will get the option to rollover on 12/31/18.  If someone leaves the company on 1/1/18 they will need to wait until 12/31/19.  I have never encountered this before so the reason for the questions.

30 minutes ago, ESOP Guy said:

Also, I am curious did they really say it would be 12/31/2018 when you would get paid or "no later than" 12/31/2018?  I would find the idea of paying you exactly on the last day of the year really odd but saying it will be some time in 2018 more normal.  It just could be they aren't 100% sure when in 2018 and so they are giving you the latest date it will be done by. 

I have seen a lot of pre-approved plans with the option of requiring a 1 year break in service, which could make a 2017 terminee eligible for a distribution after 12/31/2018.  Or something like the last day of the year following termination...

31 minutes ago, MarkGAllen said:

The answer I received from the company managing the plan stated that they would "get a list of eligible employees and start sending notices on 12/31/18."  So if someone leaves the company on 12/31/17 they will get the option to rollover on 12/31/18.  If someone leaves the company on 1/1/18 they will need to wait until 12/31/19.  I have never encountered this before so the reason for the questions.

Absolutely get a copy of the SPD.  Even though I don't doubt what they told you is correct (but uncommon), you should always know what your rights and responsibilities are.

Keep us posted.

A long time ago we had an annually valued pooled profit sharing plan that the owner wanted the condition for distribution to be only after a 2 year break in service, which was an option in the AA He was paranoid that one of his employees was going to take his profit sharing distribution and setup a business in competition with him.

I think all he really accomplished was more lost participants in the days long before automatic IRA rollovers.

here is document language from a FT William document. of course, there are other documents, but I would think they would be similar.

as noted above, you might be due a contribution for 2017 which could be deposited late in 2018 (for instance the regs indicate a safe harbor 401k could be as late as 12 months after the plan year) which would be option 'b' below, but for they could have done option 'd' - in this plan example NRD. most plans I know choose option 'a', pay out and then an additional final fayment if such additional allocation occurs

3.     Time of Payment (Other than Death)

Distributions after Termination of Employment for reasons other than death shall commence (Section 7.02):

a.     [  ]  Immediate.  As soon as administratively feasible with a final payment made consisting of any allocations occurring after such Termination of Employment

b.     [  ]  End of Plan Year.  As soon as administratively feasible after all contributions have been allocated relating to the Plan Year in which the Participant's Account balance becomes distributable

c.     [  ]  Normal Retirement Date.

d.     [ X ]  Other: Age 65

14 hours ago, RatherBeGolfing said:

I have seen a lot of pre-approved plans with the option of requiring a 1 year break in service, which could make a 2017 terminee eligible for a distribution after 12/31/2018.  Or something like the last day of the year following termination...

I agree maybe I was reading the OP wrong but it doesn't say after 12/31/2018 but on 12/31/2018.  I recent comment makes it clearer that it is after 12/31/2018.  Which yes is a wait until at least one year after the year of termination provision. 

On 3/22/2018 at 5:31 PM, Lou S. said:

A long time ago we had an annually valued pooled profit sharing plan that the owner wanted the condition for distribution to be only after a 2 year break in service, which was an option in the AA He was paranoid that one of his employees was going to take his profit sharing distribution and setup a business in competition with him.

I think all he really accomplished was more lost participants in the days long before automatic IRA rollovers.

 

I once had a plan for a lawn service that had a generous PSP and he made people wait 3 years.  He wasn't paranoid he could tell you the names of guys who left him in the fall and by the next spring had a new pickup truck, lawnmowers and other equipment competing with him.  The problem decreased dramatically after the wait provisions were put into place.  I guess it depends on easy of entry into market.  You can get into the basic lawn care business for maybe $20k or less depending how much of a loan you can get on the truck. 

It's inaccurate to say they are holding your account "hostage" if they are not trying to exact a concession from you, e.g. a release of claims, in return for earlier distribution of your account. If they were doing that, then "yes" it would be a "hostage" situation and "yes" it would potentially be a violation of law.

On 3/22/2018 at 5:37 PM, MarkGAllen said:

I will request a copy.  I have requested twice already and have not received yet.

I would also request a copy of the ERISA plan document, as SPD's often aren't accurate or complete. Plans are required to provide the requested documents within 30 days, or could face penalties of up to $100 per day. If you have trouble getting the documents the DOL may be able to help. See link below.

https://www.askebsa.dol.gov/WebIntake/Home.aspx