Leaving 401K $$$ with company post Retirement

[mathjak107]

i would never leave my 401k money with an ex employer .

all it takes is one experience when a company gets taken over because of financial issues or goes out of business to understand the hassles involved in getting your money out .

i still worked at the company when it was taken over and it took me a year and from horror stories i have seen that is good . not only that but the money sits dead in the water in not even an interest bearing account all that time .

don't forget the company is no longer paying the custodian when the plan is terminated .

there is so much red tape involved when a plan is terminated and your money is in it .

 

[mathjak107]

the issues are that the plan cannot be broken up and distributed out until spousal consent forms are in from everyone who has a spouse or ex spouse .

they all under law have to be notified and sign off on the fact that they are aware proceeds they may be entitled to are going to be distributed .

many ex employees have to be tracked down and located . newspaper postings in the legal sections have to be run for x-amount of months .

it is a long drawn out process and single or not no one can get a penny out .

since that takes months odds are the custodian is no longer getting paid so they have to turn the money over to the state . it takes months until the state finds a new custodian who can take over , make sure all the paper work is in and send out the funds .

no one ever realizes how difficult getting 401k money out of a plan is if the employer terminates it . our company didn't even go bankrupt . they just terminated the 401k . then the company employees and assets were taken over by a new company

 

[MBSC]

My megacorp stable asset fund has a .43% expense ratio. It has a return of 1.58% YTD. It is mostly AAA corporate bonds. That return can easily be duplicated with something like IEF...

Everyone's situation is unique. For me, I do not compare the stable value fund to 7-10 year treasuries (IEF). I compare it to money market funds and high yield savings accounts so 1.58% after expenses is fine for my situation.

 

[Big_Hitter]

the issues are that the plan cannot be broken up and distributed out until spousal consent forms are in from everyone who has a spouse or ex spouse .

uh....401k plans aren't subject to spousal consent for distributions

 

[Big_Hitter]

many ex employees have to be tracked down and located . newspaper postings in the legal sections have to be run for x-amount of months .

it is a long drawn out process and single or not no one can get a penny out .

that's true for DB plan terminations, DC plan terminations are much simpler, trivial in fact compared to a DB plan termination

 

[Big_Hitter]

just saw this on yahoo


"Companies urge retiring workers to leave something behind—their money"


http://finance.yahoo.com/news/companies-urge-retiring-workers-leave-125400740.html

 

[MRG]

just saw this on yahoo


"Companies urge retiring workers to leave something behind—their money"


http://finance.yahoo.com/news/companies-urge-retiring-workers-leave-125400740.html

Wow. Who would pay that?


From the article:
"International Paper tells employees that it is easier and cheaper to keep their money in the company fund. Mr. Hunkeler said workers pay about 0.45% of assets in fees to outside money managers when they remain in the firm’s 401(k) plan; by comparison, he estimated, they would pay fees of more than 1.5% in IRAs. Retention also helps the company keep fees low for all workers."

 

[Big_Hitter]

Wow. Who would pay that?

people who believe in actively managed funds

 

[MRG]

people who believe in actively managed funds

The ICI says the average cost of an active equity fund was .70 in 2014. I think the article was self serving.

 

[Big_Hitter]

The ICI says the average cost of an active equity fund was .70 in 2014. I think the article was self serving.

well it was from the wsj....plan sponsors will often negotiate a much lower fee schedule for actively managed funds than you or I can get in a retail IRA....not that I would go there

 

[jazz4cash]

just saw this on yahoo


"Companies urge retiring workers to leave something behind—their money"


http://finance.yahoo.com/news/companies-urge-retiring-workers-leave-125400740.html

Yeah, we had a whole thread here based on that article. Oh, wait...

 

[Big_Hitter]

Yeah, we had a whole thread here based on that article. Oh, wait...

haha yeah pretty much - maybe those guys lurked our thread...

 

[youbet]

Everyone's situation is unique. For me, I do not compare the stable value fund to 7-10 year treasuries (IEF). I compare it to money market funds and high yield savings accounts so 1.58% after expenses is fine for my situation.

+1

Yes, comparing a stable value fund offering day by day, penalty free in and out privileges to 7 - 10 year treasuries is silly. Totally apples to oranges.

I monitor my son's 401k for him (Fidelity based) and note that the interest for the first qtr for the stable value fund is 2.98%. Sweet.

Unfortunately, the MegaCorp 401k that I've left intact through my first ten years of retirement does not offer a stable value fund. It does have a reasonable selection of low cost index funds though. For now, I'm content leaving my money in the 401k.

DW's 403b did not offer any compelling reasons to stay. She moved to a rollover IRA asap upon retiring.

Each situation seems different.

 

[youbet]

uh....401k plans aren't subject to spousal consent for distributions

+1

I also think that's the way it works. I'm sure mathjak did not mean to mislead, but it does seem that dbp's, dcp's, cash bal pensions, 401k's 403b's, the various IRA types, etc., all have nuances the owner should understand.

 

[mathjak107]

they absolutely can not terminate the plan and make final distributions without spousal consent forms .


As a general rule, married participants must receive the written consent of their spouse prior to taking distribution from a
qualified plan. your spouse must be made aware of any changes .

changing custodians does not require spousal consent but terminating the plan or taking a loan or money out does in most states . i know in ours it does . i went through it .

 

[Big_Hitter]

they absolutely can not terminate the plan and make final distributions without spousal consent forms .

sorry but you are incorrect


generally you only need spousal consent for money purchase pension plans, which is a DC plan that requires a QJSA form of benefit

https://www.irs.gov/Retirement-Plans/Terminating-a-Retirement-Plan


https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Plan-Terminations


defined benefit plans are a whole different ball game

 

[Big_Hitter]

As a general rule, married participants must receive the written consent of their spouse prior to taking distribution from a qualified plan. your spouse must be made aware of any changes .

not in every 401k or profit sharing plan - if I quit my job I could take my entire balance and spend it on something frivolous if I wanted to without spousal consent

now there is a push to force DC plans to offer spousal consent upon distribution, since lump sum distributions contribute to poverty for that very reason

 

[Big_Hitter]

https://www.irs.gov/irm/part4/irm_04-072-009.html#d0e195

read 4.72.9

A profit sharing plan, including a 401(k) plan, may avoid the standard QJSA and QPSA rules if the following three conditions are satisfied:

• The plan provides that 100% of the participant's vested account balance will be paid to the surviving spouse if the participant dies before the ASD;

• The participant does not elect a life annuity (most of these plans don't offer them anyway); and

• The participant's account balance does not include any money subject to the standard survivor benefit rules (e.g., transfers from a money purchase or a defined benefit plan).

 

[mathjak107]

if a dc plan terminates you will likely run in to the same snags with the forms . they will not break up the plan at least in our state regardless of any of the above conditions . the above conditions assumes a custodian is handling the money . there is no more custodian if your plan terminates because the company folds or is taken over .

 

[Big_Hitter]

for missing participants in a DC plan termination, I'm certain you can default them into an IRA once you've done a diligent search

several companies do that for a fee - rollover systems for example


again, terminating a DB plan is totally different

 

[Big_Hitter]

if a dc plan terminates you will likely run in to the same snags with the forms . they will not break up the plan at least in our state regardless of any of the above conditions . the above conditions assumes a custodian is handling the money . there is no more custodian if your plan terminates because the company folds or is taken over .

if you have a public sector DC plan the rules can be very different - my comments relate to private sector DC plans


private sector qualified plans are covered by federal, not state law

 

[mathjak107]

mine too relate to private sector plan terminations . in fact here is the rules i see on it when a plan is "abandoned " as it is called . .

Q: Do I have to give spousal election forms to participants whose distributions exceed the plan's de minimis cash-out level if the participants are just rolling over their distributions to another employer-sponsored plan or an individual retirement account?

A: Yes. A rollover of an amount exceeding a plan's de minimis cash-out level is an optional form of distribution that, when elected by a married participant, is subject to spousal consent. The plan may have a cash-out level of up to $5,000 without spousal consent. Distributions from the plan must comply with the written terms of the plan as well as the requirements of ERISA.

 

[Big_Hitter]

that's a true statement for defined benefit plans, not all defined contribution plans though


can you show the source citation for that q/a? I bet it related to a defined benefit plan

 

[Markola]

What does "exempt" mean in the context of this chart. It looks like it means "exempt" from being taken by creditors during bankruptcy. I wonder what it means regarding law suites.

You mention Minnesota's protections are crap. All I see is "yes" and "yes" under TIRA and Roth IRA. Almost all the states show that. What is "crap" about Minnesota's protections?

My state, Illinois, also shows "yes" - "yes." But I'd expect anything involving gov't in Illinois to be crap as demonstrated regularly.

Yes, Illinois appears from this to be one of the states with strong protections completely exempting IRAs and Roths from creditors. I don't know if that includes liability law suits, but seems a good bet if financial damages are awarded against you. It is probably possible for most anyone to go bankrupt for medical reasons, if the matter is grave enough. If you read the fine print by Minnesota, it says our IRAs are exempt only to $69,000, which is virtually nothing. It also says a court decides what amount is reasonable for me to live on. No thanks. As a Minnesotan, then, it seems an extra moat around assets can be had by keeping one's funds in an ERISA account (401k, 403b, etc.) vs an IRA. We have another moat, too, which is a liability policy.

When you really start Googling this confusing topic, it is also hinted that everyone is subject to a $1 million limit of protection in an IRA, even in Illinois, so it might be worth trying to understand. i am no attorney so cannot say.


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[meierlde]

Yes, Illinois appears from this to be one of the states with strong protections completely exempting IRAs and Roths from creditors. I don't know if that includes liability law suits, but seems a good bet if financial damages are awarded against you. It is probably possible for most anyone to go bankrupt for medical reasons, if the matter is grave enough. If you read the fine print by Minnesota, it says our IRAs are exempt only to $69,000, which is virtually nothing. It also says a court decides what amount is reasonable for me to live on. No thanks. As a Minnesotan, then, it seems an extra moat around assets can be had by keeping one's funds in an ERISA account (401k, 403b, etc.) vs an IRA. We have another moat, too, which is a liability policy.

When you really start Googling this confusing topic, it is also hinted that everyone is subject to a $1 million limit of protection in an IRA, even in Illinois, so it might be worth trying to understand. i am no attorney so cannot say.


Sent from my iPad using Early Retirement Forum

In general if you loose a big lawsuit you do like companies do and declare Bankruptcy. Then the various bankruptcy rules determine how what you had is parceled out. In particular the creditors can not be paid with exempt assets such as 401ks, defined benfit pension, social security and in some states the equity in the house you live in.