Does My Employer Have Control Over My 401k?

So you’ve set up your 401(k) with your employer’s administrator, made your allocation choices, and everything is set to go. You’ve got this retirement saving thing by the tail, right?

Not so, Mona Me. (or is that mon ami?) Or at least not completely so. You see, way back in the bad old 2006’s (before all the hope and change), Congress passed the Pension Protection Act, which had a provision in it that allows employers to automatically enroll employees in retirement plans, and even make default investment choices for them.

Doesn’t apply to me, right? Since I enrolled on my own and made my own choices for allocation of my investments… right? Once again, Mona, you’re not completely correct.

The Most Common Change

The plan sponsor (your employer) can make changes to the funds available for investment choices at any time. So, instead of that no-load broad market fund that you originally chose, now you have a loaded (yes I know they’re usually waived loads in 401(k)’s) high expense ratio fund that doesn’t really accurately represent the total domestic equity market very well.

And your employer can make this change any time they want – maybe it’s to get their son-in-law an additional commission since he sold the plan. But then again, maybe it’s just because the bossman read an article that said A shares were superior to all other investments, or something equally idiotic.

The Other Kind

Another possible way that your employer could change your allocation plan in your 401(k) account is if it was determined that your account wasn’t diversified enough. Seems pretty big-brotherish, but it’s still a possibility – although according to this article in the WSJ, “So far, plan sponsors aren’t re-enrolling just because they think a participant isn’t properly diversified…”.

Default investments can be changed on a whim as well – from a basic money market account to, perhaps, a costly stable-value insurance product. And when these choices are changed, your money is automatically moved.

The Bottom Line

So – the watchword you should take away from this is that you need to pay close attention to communications that you company sends you regarding your retirement plan. None of these changes can be made without communicating the change to you in advance – but if you are like most folks when you get that pack of paper and the book written on recycled cigarette paper, the last thing you want to do is sit down and study it over, right Mona?

Particularly pay close attention when your company sends you a letter explaining any changes to the plan. These are supposed to be concise and easy-to read, so watch for them. Usually when funds are going to be automatically moved you’ll get some notice in advance so that you can choose something different from the default. This may be helpful, or it may not – but you’ll be in a position to have better control over your fund.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • We were trying to transfer the funds from my last job over to chase…check is lost in the mail..there s 0 balance in both accounts. What is worse is the there s an amount of money lost on the market since november & they cant tell how that happened since my money were in a fixed annuity and i ve never opted to put them on the market again…thinking of a legal way to hadle this..?? Tia

    • We just found out the company was sold & they ve send out letters we are not aware off, but my money were in a fixed annuity…even if they did sent me a letter, it sounds really unfair to play them on the market witouth my express agreement…one thing is to switch them around on the market, but they were in fixed annuity fund??? Can i do anything legally about it?

  • I wanted to take a loan from my employee 401K to help put a down payment on my first home, but found out the plan does not allow for loans, only hardship withdrawals. Does my employer have any authority to make an exception to the plan’s restrictions? I feel like if I asked them, they would allow me to take out the loan, but for the Plan language. Why wouldn’t a loan be permitted and only a withdrawal? I want to pay it back eventually? Is there anything I can do?

  • My former employer recently changed 401k plans from one provider over to Vanguard. For the past year, I had allocated 100% of my investments to money market as I felt the stock market was somewhat overvalued.

    I came to learn today from a current employee that on Jan 1 the accounts were transferred and if you didn’t elect your investments with the new provider they would automatically be allocated to a default investment (based on your expected retirement age). After asking around, I’ve found that another former employee was notified of the upcoming change via mail, but I didn’t receive the similar notification. This has resulted in ~5% loss in value in the past week during the time I was unaware of this change.

    Do I have recourse here? I would have expected to be notified in advance. Further, I would have assumed that if they were going to default something…. they would have defaulted to a money market with the new provider… not such a dissimilar investment.

  • Hi Jim-

    My employer has changed some 401(k) funds available for employees to invest in, no surprises there. As is typical, future contributions in Fund A are automatically changed to new, equivalent Fund B.

    What does seem really odd is that the existing shares owned in Fund A are automatically exchanged into Fund B. There is no option to opt out of this forced exchange other than to exchange into Fund C (which isn’t much of a choice, really.) Our 401(k) is administered through a regional bank, BTW, and invests in pretty typical range of funds (T Rowe, Fidelity, Vanguard)

    I don’t understand how I can be forced to trade something which I own and in which I am fully vested (?)… ESPECIALLY since this has become a yearly routine where 10-20% of funds available are rolled over.

  • Jim,
    My company is in the process of changing our 401k from Mass Mutual to Fidelity. Over the last year our company has stopped matching contributions and we have also seen 4 pay cuts. I have also seen a loss on my 401k instead of an increase. During this transition can I opt out and remove the money? At this point I would feel safer investing in cd’s or just a savings account.

    • Probably not – but this is up to the administrator. You’ll need to contact them to see what options you have available. Most plans have a cash or guaranteed interest option – but at the bottom of the market is not likely the best time to sell out.


  • I work for a national chain drug store and we were informed this year that the maximum amount the we can elect toward our company stock is 20% for our 401k . If we decide not to diversify the company will automatically limit us to 20% and the remaining 80% will be directed toward the guaranteed stable fund. The goal is to make sure we are diversified. If we choose to direct all of our money toward our own company stock (which is not advised) can they maximize our amount.

  • My former employer decided to change retirement fund plans 2 years ago. I had left the company 2 years prior to that and decided to leave my plan with them but only paid into it randomly. Since I was no longer with the company, my account didn’t transfer, but was, for all intents and purposes, canceled. I didn’t find out about the switch until late last year and have jumped through a number of hoops (in some cases multiple times) attempting to withdraw the remaining funds. In general, they’ve been giving me the run around about it and I can’t get a straight answer. I want to know how much I should expect them to payout. The statement shows a balance of about $3500, the same account balance was reported shortly after my old company switched plans (minus a couple of $10 maintenance fees) . Is that the amount that they will payout if I ever manage to get this settled? The money is not in any active account, it’s essentially in limbo. Any insight is very much appreciated. Thanks!

  • The company where both my husband and I are employed is financially struggling. In order to obtain additional funds, my employer is tapping into her 401K. She is closing the plan. She told us that in order for her to withdraw the funds, she had to close the plan. Is that true? Why can’t she simply borrow against her plan rather than withdraw the funds? It’s a small company, and apparently, only 10 of us are currently contributing. She said that she’s paying someone $15,000 a year to manage the plan. That seems very high to my husband and me. Thoughts? Thank you

    • That does seem a bit excessive, but I don’t know all the facts about the situation and the service provided.

      The truth of the matter is that your employer doesn’t have to provide a 401k plan, and as such can close a plan if it has become a poor business decision to maintain it.

      From your perspective, you can continue to make contributions to an IRA (both you and your husband) although it won’t be as much. You can also rollover your existing (closed) 401k accounts to IRAs as well.


  • Jim, you talk about this like it is always a bad thing. The ability of an employer to change the investment alternatives in a plan is actually a good thing. And they actually have a fiduciary responsibility to do so when the need arises. The problem is when a company doesn’t act in their employees’ best interest.

    Companies should be having periodic investment reviews, where they review the current offerings and compare them against others in that investment class. Let’s say a short term bond fund has been underperforming its peer group for quite a while. Shouldn’t the company be allowed to replace that fund with a better one? I’m not talking about churning them in and out every quarter.

    Most of the employees may not have the time or expertise to analyze their investments in a way a company can, especially with professional guidance (which 401k custodians will often provide as part of their package). The same employees that are upset that a fund is being replace would be the same ones who would want to sue the company if they found out that a fund they were investing in for 10 years was a dud, which could have and should have been swapped for a better fund in the same sector years ago.

    The ability of a company to put the best of a myriad of investment choices in their plan, and update them so they STAY the best, is a good thing. When employers abuse that privilege for their own gain or convenience….well, that’s another story.

    • Couldn’t agree more.

      Most often if the employer/administrator is doing a good job the employee/participant isn’t looking for articles regarding whether or not the employer/administrator can control the employee’s account in the plan.

      In other words, the article is not necessarily written for someone whose plan is well-managed and has no problems.


  • Hi, I have been with the company I work for for 25 years. I have been depositing into the company’s 401 K plan for most of this time, giving me a balance of over 200K. I am about 12 years from retirement. I am also a union member with an annuity as a retirement beneifit. My employer has decided that because the Union members have an annuity, it doesn’t want to match the Union member’s deposit, which is okay, the match is not much. But to do this, they are not allowing me to deposit into my 401K anymore. My account will exist and will earn interest, and I can use it upon retirement, but I cannot deposit into it. Is this still called a 401K? Is this legal?

  • What would a financial advisor charge to look over my plan document .And explain it to me in terms I can understand . I’ am an alternate payee of 50%of former spouse 401k through court order. Administrors have not been knowledgeable are direct about questions I’ve asked

  • My employer set up our 401k with fidelity and i can’t take a loan against my 401k. I asked them about it and they said that they are working on adding that but it takes time due to some ERISA deadline. I looked that up and couldn’t find it anywhere. Are they blowing smoke up my butt?

  • My company had a 401k and for 4 years the census was not reported correctly. They went with a new HR company thus a new 401k plan. In doing so they found the error. Long story short, they had to open an account for those employees that were eligible during that 4 years and pay into the employees account what they would have earned during that time. They said they are now going to close the old 401k and said we could roll over money to whatever we wanted or roll over into the new 401k with our new HR company. They do not match and I do not want to roll it over to the new 401k but they said I have to and I can’t roll over to my IRA like they said I could in the beginning. Are they allowed to do that? Roll over from the old 401k to the new one that I don’t even participate in? Please reply.

  • My employer stop and closed there 403b. And open a new one with some one else. Can I cash out the old one that they closed. And I still work at the same place. Can you help

  • My wife recently wanted to transfer her money from an old 401k from her first employer to her current employer to take advantage of their new stock options. They told her that her money and account was transferred to SunTrust about 5 to 10 years ago?? My wife contacted Suntrust to locate her money, they bounced her around most of the day to different departments and came back and said we cannot locate your money under your social security number, it must have been turned into the state??? Can that happen???

  • I’m trying to close out a small 401k account from my old employer. I was fired out of the blue and let’s just say we’re not friendly at this time…lol! I called and informed them that I wanted the account closed…they sent me the proper paperwork with instructions. I filled everything out as required and wrote them a check they said they needed for filing fees. $175! It’s been close to a month now and the account is still not closed. I’m currently disabled and in need of surgery so the money would be a big help! Is there a time frame by which they have to close the account? Some sort of law that they have to close the account within a certain time? I’m getting agitated and they won’t take my calls. I could use some advice. If it matters I live in NJ. Thanks in advance…..

  • I my husband and I have been trying to obtain information regarding a clause in his 401k account. First, not that he plans to, but IF he wanted to stop contributions for 6 months…. There is a fee of $100 to stop and another $100 fee to start contributions again. Is this standard or normal procedure?
    My husband is almost 61 and was interested in moving some of the funds in his 401k . He was told that there is a clause that states he CANNOT withdraw ANY funds until he is 67 or no longer employed by his company. We have not been able to find any information regarding this situation and thought at his present age, he could withdraw ( just transfer) funds to another account. He was told he could only take a loan, which he obviously will not do.
    Any information you could give would be appreciated!!

    • We just went through the same thing where I work. A current employee under retirement age wanted to withdraw money. Fidelity said absolutely not… claiming it was a built in restriction to all 401k plans. If the money the employee had in there was rollover money that could be withdrawn, but contributions they had made could not (while they were still employed or under retirement age).

  • My former employer moved all their 403b plans from Valic to Mass Mutual without any notice to former employees. I found this out when I called Valic to make a change to my investments and was informed my account had been surrendered and had a $0 balance. Currently funds are “in transition” and aren’t available to be managed through Mass Mutual until 9/14/15. It seems to me that we should have been notified before this change. Is that correct?

  • My company just stopped my 401k
    They want me to enroll with a baking with all the money to be transferred.
    Two qwestions. 1..can a company do that.
    2.. will my money be OK with a institution like a bank. And all the money will be transfered.

    • Kevin –

      If the new account is another 401(k) or other deferred account, it should be just as safe as it was in the 401(k). As to whether the company can “do that” – you may have the option to rollover your money from the old 401(k) into an IRA at the institution of your choice, but otherwise any other option (such as cashing out) would result in significant taxes and likely penalties for doing so.

      Hope this helps –


  • My husband transferred money from a previous employers 401K to his new employer. We had some financial problems and needed to withdraw some of it & they don’t allow withdraws as long as he is employed. If the money transferred is all from the rollover and none was deferred or matched from current employer, can we just withdraw the entire amount?

    • Unfortunately not. This is one of the downsides of transferring money into a 401k plan – you lose access/control over the funds.

      Perhaps you may be able to take a loan against the funds in the account…? Check with your plan administrator to see if this is available.


  • My company doesn’t allow me to choose how my 401k is invested. They manage the money for the employees, so even though I am in my early 30’s I am forced into a conservative investment strategy. Is this legal?

    • It depends on how your plan is designed. Sounds as if your plan is designed with no option for employee choice in investment. I would review the plan documents if I were you and determine if the plan is actually a 401(k) plan and/or if there are other options available to you.


  • Can a company go private and without ANY notice to the employees prior, convert all of your 401(k) plan monies to company stock with no access to cashing it out until the age of 59 1/2?

    My former employee did this and I would have rather moved my 401(k) to an IRA instead of company stock, especially since they let me go for refusing to move heavy furniture 10 days after I had surgery.

  • When I set up my 401k, I am 100% sure I chose my contributions to be a Roth 401k, not an Employee Pre-Tax deferral. Now when I look at my investment info, 95% of my investments are listed at EE-Deferral. I want to know does the Firm, or my Employer have the legal right to change my investments from a Roth to Pre-Tax deferral without my consent or knowledge?


    • No, the only reason I can think of is if you weren’t eligible for the Roth and that seems unlikely. I think you need to get in touch with your HR/administrator of the plan to work this out.


  • Can my employer legally eliminate 2 well performing investment funds that I am satisfied with from my 401K? Other employees are also satisfied with these funds’ performance over the years, and we feel victimized by this. Reading between the lines of the notification sent, the fees affiliated with the present funds are more than the fees affiliated with the new funds they are adding and is no doubt the reason for this change. Does the employer still have to offer the funds they want to replace if employee is willing to pay the difference in the fees charged?

    • Unfortunately this happens all the time, and all you can do is talk to your employer and let them know your concerns. Ultimately it is the employer’s decision as to what funds are offered.

  • Oops a typo. Can an employer legally withdraw money from a 401k without the consent of the individual who owns the 40lk.

      • Is an employer allowed to withdraw money from a 401k account without notice and permission of the (former) employee? The employer claims that there was an over payment of employer contributions (claiming that the employee was not eligible for employer contributions) BUT that is actually not true. The employee was eligible but the employer withdrew the money out of spite because the employee resigned. Please help! Wondering how to get the money back from the former employer/administrator. Thanks!

  • Just wanted to know if an employer and legally withdraw money from a 401k without the consent of the individual who owns the 401k?

  • my human resorce manager went into my 401K in Sept.2011 and reopened a loan that i defalted in june of 2011 and then come to me and said we found out that you can still pay on your loan since you were out of work hurt from the job, but if you dont want it just sign this paper saying you want to defalt your loan. this was in a longb line of being called in the office for all sorts of things after returning to work from injuries at work.and finaly was firedafter settling with workmans comp

  • If I don’t like the way that my company is handling my 401k can I take it out against their will? They say I can’t access it until I retire or terminate employment. What legal recourse do I have?

  • Debra, there must have been some paperwork that provided for the company to automatically sign you up if you did not specifically opt out – otherwise what you described is not allowable. I’d talk to your HR representative to let them know that you don’t want to participate.


  • I did not sign up for a 401K, furthermore I do not want to be involved in my companies 401K but they without my permission withdrew monies from my pay and deposited them into the company 401K. Is it legal for an employer to take monies from your check other than taxes without your permission?

  • My wife company was reciently purchase by another company. She had a 401 K with the old company. The new company for the last year and a half has not had a match and there is no match in sight. She went to her HR department and told them that she wants to withdraw all of the money. She was told the only way that she can get money out of her account is if there is real estate involved or if there is a hardship. Why does her company have any say in what she does with her money ? This new company has never put a dime into her account out of their pocket. If she wants to take the monies out and pay the penalties, is it not her money to with it what she wants ?

  • Helen,

    Unfortunately, only your employer has control over the custodian of your 401(k), and that includes the fees being charged as well as the choices of investments.

    The main thing that you can do if the plan is really that bad is to invest and save outside of the plan, and hope that what you have invested so far will at least retain its value. If you can do so, you might take the amount already in the plan and allocate it solely to a money market or guaranteed return vehicle – that would at least provide stability.


  • Jim,
    Was told I had a 401k with profit sharing when started with employer. Had monies took out weekly then after a couple of years noticed nothing was getting put in from the company. I stopped putting money in 401k because it was not doing anything. Now I found they transferred it to a different investment company without any authorization and have lost a great deal of money and the fees they charge are huge. There wont be anything left at this rate. Is there anything i can do?

  • Dan –

    Wow. I’ve never heard of that, and I’m pretty sure it’s not allowable legally. I’d recommend getting in touch with the Department of Labor, Employee Benefits Security Administration, and explain the situation there, to get their feedback.

    If the plan is no longer a 401(k) plan (or never was), then the DoL can’t necessarily help unless fraud can be proven.

    Best of luck to you –


  • My wife’s employer moved all the employees 401 to a single account in his name and he controls the risk taken since he has the most money in it. He gets one statement telling how the funds are doing but not a breakdown by employee. Is this legal? Don’t they owe a statement to each employee. The Employer matches up to 3 percent. But act like its all his money.

    Nervous in NY

  • Dennis –

    While many employers offer provisions such as loans and possibly hardship withdrawals and the like, they’re not required to offer these provisions. That may or may not be a good thing – allowing such withdrawals can cause folks to jeopardize their retirement funds, but at the same time if you really need the money, it’s pretty exasperating to not be able to use it.

    As far as I know, unless some underhanded dealings are in play, there is no benefit to your employer for your having money in a 401(k) plan.


  • My employer will not allow us to access our money in our 401 in any way. The only way is to quit the company. Is this legal and are they making money someway on our 401’s.
    Thanks, Dennis

  • Mike and Ripped Off –

    Sorry to hear about the issues with your plan(s). Unfortunately all you can do is work with your HR rep to request better information, access, and options in the plan. But since it’s an employer-paid benefit, you don’t have much say in the plan options otherwise.

    Make the best of the situation and as I said, work with your company to improve it if you can.

    Best of luck to you both –


  • Stephen, they’re doing the Same Thing at my company and we have a july 11th deadline approaching that they’re not addressing. The company is:
    ** changing to a new 401K investment company (from Fidelity to Aon Hewitt / BYU Mellon), we wish we could stay at Fidelity!!
    ** creating a 2 week blackout period which will stop any redistribution of funds
    ** forcing the employees to go to the default investments
    ** refusing to tell the employees what the default accounts / investments are
    ** refusing to discuss any costs (i.e. transfer fees, re-investment fess, etc.)
    ** In addition, the company has told Fidelity to NOT allow rollover of the funds.

    Sounds familiar. I get the feeling this is happening across corporate america. It’s OUR MONEY.

    “Is any of this legal?” Does anybody know? What is the best way to prevent/get around this? Should we confront HR before July 11th? It feels like it’s too late…

    Am feeling Very Ripped Off.

  • My company recently switched us to a crappier plan – less fund choices, etc, but through the same company (Fidelity). So they automatically switched over what our investment choices were – that was really annoying in-and-of itself. I ended up investing in things I didn’t really want to last month. In order to get my old choices back, they made me sign up for a brokerage account (free) on top of the 401k account in order to invest in the funds I had previously invested in, but it’s all a much cumbersome process now.

    Anyway, that was annoying, but on top of that, they are also actually taking the existing funds that were invested in the (now unavailable to us without brokerage account) mutual funds and moving them to the new funds.

    So let’s say I had invested in Japan, Canada, etc. mutual funds – they would have moved all of that into some generic retirement fund, had I not found out today. I’m sure a lot of employees will be upset once they realize this (most do not check their accounts as often as I do).

    Do they actually have a legal right to move my investments like that? And what about changing my investment selections? It seems like this is my money, and it’s already invested, so how can they mess with it? I am actually suspicious about some pump and dump ponzi scheme, with all of these retirement funds being redirected under-the-radar and without consent.

    They sent out really lengthy, ambiguous literature about “plan changes” and made the whole issue clear as mud.

    In my opinion, they should have sent an explicit email stating “X will happen if you do not do Y by this date”.

    But on top of that, I am really concerned about the power they wield over my investments, and I’m debating whether to even continue investing in the 401k.

    Is this legal? Do employees have any recourse? Are they saving money by doing this to us? What are your thoughts?

  • Stephen –
    It doesn’t seem legal, but it’s possible that you’re not interpreting the changes completely. I would suggest opening a dialog with the plan administrator to get a good understanding of just what exactly is going on.

    Refusal to provide information is not allowed – you deserve information about your plan, so continue asking questions. After all, it’s your money, right?

    Best of luck to you –


  • My employer is changing to a new 401K investment company (from Fidelity to Milliman). The company is creating a 2 week blackout period which will stop any redistribution of funds. Also, they are forcing the employees to go to the default investments. They are refusing to tell the employees what the default accounts / investments are. They are also refusing to discuss any costs (i.e. transfer fees, re-investment fess, etc.). In addition, the company has told Fidelity to NOT allow rollover of the funds. Is any of this legal? I know they can change the investment firm. But, how can they control MY funds I have contributed and not allow me to roll those funds into another qualifying plan?

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