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401K shenanigans
Old 04-11-2008, 10:21 AM   #1
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401K shenanigans

Okay...I work for a megacorp, which recently (1-1-07) changed the administrator of the 401k plan. Rep of new administrator comes to our office and explains plan, and investment options. I asked question about when/how one can take distributions. His answer was, after age 55, and after you are no longer an active employee, you can take periodic distributions as needed, without paying the 10% penalty, but you still have to pay the taxes, and we can set up an automatic system for you.
(401k rules allow this, but not IRA rules.)

Now that I'm ready, I find that megacorp has changed the rule, (without telling anyone) and will only make a lump sum payment. (all or nothing)

That only leaves the option of rolling over to an IRA, and having to set up a 72T, or pay the penalty, which is not really an option.

I feel like megacorp has deceived it's employees....(again)

How can they change critical rules such as this without notifying affected employees? It just seems so underhanded to me. Should I contact an attorney?

any thoughts? or suggestions?
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Old 04-11-2008, 12:21 PM   #2
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I would guess that the advantages of picking whichever investments you want in an IRA (over the limited choices of their 401K) would outweigh the burden of the rollover process and setting up a 72T.

Did you ever see this option in writing, or are you only going with what the rep showed you?

Most likely their only requirement is to document the current plan. It would be nice if they notified you of changes, but I don't know that this is required. I just browsed my plan, it says it can be changed or cancelled at anytime, and my only guarantee is that I don't lose my money, and that I become 100% vested at that time.
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Old 04-11-2008, 12:22 PM   #3
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My thought would be to attempt to set up the automatic distribution with the administrator and maybe Megacorp wouldn't even notice. Why would megacorp care? Administrator would probably prefer to dole the funds out slowly, if at all. It that's not doable, go with 72t.
Did they publish the change in a summary plan description, or just tell you verbally "you can't do that anymore"? I find that frequently noone at megacorp knows the details as well as I do and Administrator (Fidelity) sometimes gives incorrect info until I ask for a '2nd level' rep.
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Old 04-11-2008, 02:01 PM   #4
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I would certainly get a copy of the SPD and see what they say in there regarding distributions. The rep may have quoted the periodic distribution incorrectly to start with, which isn't uncommon. So, I'd do a little more checking, with your employer and the plan provider, as information like this isn't always readily known by people, and some will just make assumptions and tell you whatever they think is the case.
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