Top Frequently Asked Questions
about 401(k) Plans
b) Mergers, Acquisition & Bankruptcy
My company was recently acquired or sold
and the new company informed us our money will be transferred to
their new 401(k) plan. However, I do not like the range of investments
offered in the new plan, can I leave the money in the old 401(k)
plan with my old employer or transfer it to an IRA?
- This happens quite often when a company
is acquired, merges with another company or is sold off. The acquiring
company wants to reduce the hassle of switching 401(k) plans as
well as reducing the administration costs. The final decision of
how the 401(k) funds will be moved and managed will depend on the
purchase agreement confirmed between the 2 companies. The purchase
agreement usually states for the automatic transfer of funds from
the old company’s 401(k) plan to the new company’s plan.
Depending on the costs involved, the purchase agreement may not
allow you the employee to withdraw or take a distribution of your
money, or roll it to an IRA due to the inconvenience of transferring
to a large number of IRAs or due to the risk of you spending your
retirement money away.
My employer seems to be in a bad financial
condition. I am worried about what happens to my retirement funds
if it declares bankruptcy.
- As soon as your 401(k) contribution is
deducted from your biweekly pay check, your employer is required
to contribute it to your 401(k) plan within 15 days. However, it
is common for employers who are cash strapped to abuse this area
of the law. As soon as the money is deposited in to the 401k plan,
your money is safe from creditors and debtors of the company, as
the money becomes your property, and not the property of your employer.
If you suspect your company is in financial difficulty, be sure
to check your employer’s 401(k) online website to see if the
funds have been deposited in to your 401(k) account. You can also
use telephone banking to check for this information. Stop contributing
to your 401(k) plan if your company doesn’t let you check
funds online, and you suspect they will declare bankruptcy soon.
My employer went out of business 3 months
ago and I am still waiting to get money out of my 401(k) plan. The
401(k) plan administrators are all laid off and service providers
tell me they cannot pay my money. What can I do?
- It is unfortunate when a company goes
out of business because both the owners and employees suffer. Also,
it is a time when many creditors and the banks are looking for the
owners and stakeholders. If your money has been deposited in to
the 401(k) plan, then it belongs to you and the creditors cannot
make a claim over it. When the courts appoint a trustee to liquidate
the business and close the 401(k) plan, normally the funds will
be paid out to the investors who have contributed the money. If
you have any problem in getting your money, it is best advised to
contact the Department of Labour at http://www.dol.gov;
you should write a letter to your senator and Congressman explaining
your situation, your place of employment and when your company went
out of business and ask for help.