Does My Employer Have Control Over My 401k?

14 July 2009 17 Comments Print This Post Email This Post

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.

  • cyn

    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

  • DDD

    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?

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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.

    jb

  • Debra

    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?

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    Bill -

    Unfortunately, since the plan belongs to the company, she has to play by their rules. Other than the exceptions that HR mentioned, the money has to stay where it is as long as she’s employed there.

    jb

  • Bill

    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 ?

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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.

    jb

  • Helen

    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?

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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 -

    jb

  • Dan

    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

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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.

    jb

  • Dennis

    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

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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 -

    jb

  • RippedOffEmployee

    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.

  • Mike

    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?

  • http://www.bfponline.com/ Jim Blankenship, CFP®, EA

    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 -

    jb

  • Stephen

    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?