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Employer Required to allow you to keep 401k after quitting?
Old 06-09-2011, 02:25 PM   #1
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Employer Required to allow you to keep 401k after quitting?

Hi,

I had already checked up on this question, by reading my employer literature, and had come to the conclusion that I would have to roll my 401k into an IRA or cash it out when I terminated employment. However, I just read an article online which stated that employers are required to allow you to keep your 401k with them, if you have over $5,000 in it. I would prefer to leave it in the 401k, if possible.

Anyone know? Depends on the state?

I have not called my employer about the question, since they don't seem to know too much about anything, unfortunately, and I don't want to waste a lot of time and energy waiting for the answer(s) from them, at this time.

Thanks,

JG III
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Old 06-09-2011, 02:31 PM   #2
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Quote:
Originally Posted by John Galt III View Post
Hi,

I had already checked up on this question, by reading my employer literature, and had come to the conclusion that I would have to roll my 401k into an IRA or cash it out when I terminated employment. However, I just read an article online which stated that employers are required to allow you to keep your 401k with them, if you have over $5,000 in it. I would prefer to leave it in the 401k, if possible.

Anyone know? Depends on the state?

I have not called my employer about the question, since they don't seem to know too much about anything, unfortunately, and I don't want to waste a lot of time and energy waiting for the answer(s) from them, at this time.

Thanks,

JG III
That's the way it worked at my old company. But I decided to roll it into and IRA I already had set up.
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Old 06-09-2011, 05:50 PM   #3
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I believe the 5K limit of having to cash out is federal law, I've seen this in other 401Ks. My megacorp 401k trustee encourages you to keep it with them, which I might do to keep the ERISA protections and they have low fees (yes, lower than VG).
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Old 06-09-2011, 06:26 PM   #4
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Why do you want to keep the 401k?

I found an IRA to have lower fees and more investment options.
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Old 06-09-2011, 06:34 PM   #5
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I left my company 4 years ago(only to return 3 months later) and they gave me 2 options: Cash out the 401K or roll it over to a IRA. I wasn't given the option to keep it with them so it must not be mandatory(It was over $5K). My company is a Fotune 500 so i'm sure they would know if they had to offer me that. So, I don't think your employer has to let you keep your 401K with them but couldn't say for sure.
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Old 06-10-2011, 12:07 PM   #6
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Best bet is to call your 401k administrator (usually an outside company who administers the 401k for the employer). They should know for sure.

My employer allows someone who leaves to stay in and my former employer did, but I don't know if it is a requirement or not.
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Old 06-10-2011, 12:54 PM   #7
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We had company stock (ESOP) included in my former company's 401(k) plan. But when I left the company, I had to liquidate the entire 401(k)'s proceeds if I chose the preferred long-term cap gains treatment option for the company stock. I forget the reason for this exception but I recall it made some sense at the time.

I ended up doing a rather complex split of the 401(k) which included a direct rollover of the pretax and tax-advantaged earnings of 401(k), taking the small after-tax contributions (401(a), principal only) in cash, and cashing out the ESOP with the favorable long-term cap gains treatment. Some of the proceeds were made to me via paper check, some via electronic transfer to my bank.

I filled out all the forms carefully and correctly, including getting a special signature from the receiving bank's manager and a separate notary stamp. Miraculously, the 401(k) administrator did everything correctly and it all worked out perfectly.
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Old 06-10-2011, 01:01 PM   #8
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I would think it all depends on number of participating employees in 401k. My understanding is that typically, greater number of employees = greater amount asset investment lower the fees and encourage an outgoing employee to remain in the plan to keep the fees low for both current and former employees.
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Old 06-10-2011, 01:05 PM   #9
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Originally Posted by pimpmyretirement View Post
Why do you want to keep the 401k?

I found an IRA to have lower fees and more investment options.
The fees are minimal / tolerable. One has better protection from legal judgments with a 401k than with an IRA. And I can take out an interest-free loan if I want to. Also, the 401K has a Stable Value fund (insurance wrap), which I like, and I don't think IRA's can have a Stable Value fund.
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Old 06-10-2011, 01:55 PM   #10
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There is a recent article at Yahoo Finance that describes this, at least in part.

Quote:
If you have $5,000 or more in the plan, your former employer must let you leave it there until you turn 65, said David Wray, president of the Profit Sharing/401(k) Council of America, a group that represents employers who offer retirement plans.
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Old 06-10-2011, 03:07 PM   #11
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And I can take out an interest-free loan if I want to.
I thought 401(k) loans had to be quickly repaid once you leave the company?

And I didn't know you could loan $$$ from a 401(k) plan if you no longer w*rk there.
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Old 06-10-2011, 03:34 PM   #12
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From what I understand when talking to reps from a number of providers...

You have to let them stay in if over $5,000 (I think it used to be $10K, but was lowered)....


The company does NOT have to pay any of the fees. Fido charges (I think) $10 per quarter to non-employees in our plan...

The loan aspect is based on the docs... our old plan was that it had to be paid off in 90 days... not sure what the new ones say, but I think it allowed a loan even if you are not an employee... would have to check on this....
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Old 06-10-2011, 04:27 PM   #13
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I thought 401(k) loans had to be quickly repaid once you leave the company?

And I didn't know you could loan $$$ from a 401(k) plan if you no longer w*rk there.
That is also my understanding.

I know someone who had a 401(k) loan and when he was laid off in November 2010 he was unable to pay it back so it was counted as an early withdrawal and he took a big tax hit, and had to borrow money to pay his taxes.
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Old 06-10-2011, 06:11 PM   #14
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The right to keep your 401K with your (former) company completely depends on their plan. You'll have to contact the plan administrator to get your options. Yes, I know the options are listed in the handbook; however, the administrator can explain the reason behind the options. I had the option to keep my 401K with my employer after retirement and I did so for four years. Had I been smarter at the time, I would have rolled it over to another instrument earlier.

As for 401K loans, most plans require they be repaid upon termination or retirement. I personally don't know of any company that provides 401k loans to retirees. Normally that benefit is reserved for active employees.
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Old 06-10-2011, 06:46 PM   #15
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I thought 401(k) loans had to be quickly repaid once you leave the company?

And I didn't know you could loan $$$ from a 401(k) plan if you no longer w*rk there.
Depends on the plan. At DH's former employer you could continue paying on an existing loan after leaving but could not take a new loan.
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