with an orphaned 401(k)
what it would be like if you couldn't access your 401(k), couldn't get any information
about it, change your investments or receive a distribution. Imagine being totally
cut off from your retirement lifeline.
"We made this
a national enforcement project in October 1999," says Smith. "We saw
this as a problem that was occurring all over the country and needed attention.
people don't abandon plans on purpose, although they do sometimes. Often the company
goes bankrupt and the plan falls through the cracks. The owner may have died.
We've seen fiduciaries that have ended up in jail and, certainly, they can't handle
the plan from jail. We've seen them flee the country, and we've sometimes been
able to bring them back."
Predominately, it is small-company
401(k) plans that meet this fate. Too often the owner, who is the fiduciary, doesn't
have the necessary knowledge to properly oversee the plan.
recent small business survey sponsored by Nationwide Financial shows that many
small business owners don't even realize that they hold primary fiduciary responsibility.
According to the survey, "more than 40 percent incorrectly identified the
plan investment provider, the financial professional, and even employees as fiduciaries."
small and large businesses, this is a complex area," says Michael Butler,
senior vice president at Nationwide Financial.
are people who make full-time careers dealing with it. They're really spending
a lot of their time building their core business and trying to make it successful.
They don't have to be an expert to offer a 401(k), but we talk with them about
linking up with a good adviser."
While an orphaned 401(k)
plan is distressing for participants and beneficiaries, there is comfort in knowing
the plan assets are protected.
"The assets are in a trust,
not subject to creditors, and under the control of a reputable third party administrator,"
says Rick Meigs, president of 401(k) Help Center.
fiduciary and sponsor of a plan walk away without filing the necessary papers
to terminate the plan and distribute its assets, it can take a while before anyone
notices. Very often it's not until a former employee tries to contact the plan
to begin receiving retirement distributions.
common way we find out that there is an orphaned plan is when a participant calls
us," according to the DOL's Smith.
I often hear," says Meigs, "is they reach the third party administrator
who refuses to tell them anything or allow them to take out their money because
the plan hasn't paid any fees."
When a plan has
been abandoned, the DOL may try to find an independent fiduciary to manage the
plan. The faster that happens, the better.
we find out about the problem we try to locate the fiduciaries," Smith says.
"Sometimes we're successful and then we have them take the appropriate steps
they should have taken to distribute the plan assets.
we can't find them we may go to court to have a fiduciary appointed to take over
the distribution of the plan assets. Since 1999, we've succeeded in getting about
75 independent fiduciaries appointed. Most cases we can resolve without doing
Unfortunately, it's not uncommon for years to pass
from the time a company goes bankrupt to when the DOL first hears about the orphaned
401(k). There are a couple things employees can do to improve the odds that DOL
officials will find out about the abandoned plans as quickly as possible.
Gnabasik, managing director at Chicago-based Blue Prairie Group, a human resources
consulting firm, says employees should pay attention to the company's financial
situation. If things are going sour, don't hesitate to ask questions.
to management. Ask about the retirement plan. If that doesn't work, that's why
the DOL is there. Tell them the company is going under and you want to make sure
you have access to your money."
Corporate financial problems
may not always be obvious. Be alert to layoffs and other cutbacks that indicate
the company is in a bind. You can't take control of your 401(k) until you quit
your job, but you don't want to make that drastic move unnecessarily.
lot of companies tighten their belt. You don't want to freak out at the first
sign of belt tightening," says Gnabasik.
"In a perfect
world, a company says to the employees, 'Guys, things are bleak.' But the minute
management says that they may lose employees, so there's a tension about disclosing
the information. It may facilitate the death cycle of the company."
other thing you can do is keep track of your 401(k) if you leave it with the old
company. Don't make the mistake of abandoning your own plan and then trying to
track it down years later when you want to start taking distributions.
best advice to just about anyone who leaves a company is to take your 401(k) with
you. Rolling it over into an IRA puts your retirement fund in your control and
relieves you of wondering if all of the companies you worked for are still up
and running. But if you insist on leaving it with a former employer, make sure
everyone concerned has your new address if you move.
have any concerns relating to a private-sector 401(k) plan, call DOL's Employee
Benefits Security Administration at 1-866-444-EBSA (3272).