Ted's Table

Technical Terms Annuity Matching contribution Summary plan description

TB: Such a delay is common if the plan is transferring from a "balance forward" recordkeeping system. These systems track everything in dollars rather than fund shares. Waiting for accounts to be updated is a common problem with this type of system.

One way to tell if the company being replaced was using this type of system is to check one of your prior account statements. If all activity is reported as dollar amounts rather than shares, it's likely the old investment company used a balance forward system.

If activity has been reported as fund shares, this probably isn't the reason for the delay. In this instance, there is greater reason for concern because it is due to something other than the old recordkeeping system.

In either case, I would ask the person who oversees the plan for your company why the transfer has been delayed and when it is likely to be completed. You should consider contacting the Department of Labor office closest to you if you can't get an answer or if the transfer is not resolved shortly.

TB: What you have been told is not correct. There are many other alternatives among the large mutual fund providers where your money can be invested directly into mutual funds. Also, there are third-party administrators who handle plans for your size company that do not exclusively offer variable annuities. You could check the yellow pages in your area. Another possibility is to ask some people at companies of your size in your area what kind of investments they have (mutual funds or variable annuities) and who they use to handle their plans.

Related Reading Unwanted Refunds for Highly Paid 401(k) Participants Long Day's Journey into ... Your 401(k) The ABCs of Annuities

TB: The company is required to follow the withdrawal rules contained in the plan document. These rules should be explained in the summary plan description, which the employer was required to give you when you joined the plan. I recommend looking at the summary to see what it says about your right to withdraw this money from the plan. Because the company offers matching contributions, they may require you to leave the money in the plan for a specific period, such as two years, before you may withdraw it. This is legal if that is how the employer has structured the plan.

You are also required to withdraw the applicable investment income when you withdraw a portion of the after-tax contributions. The investment income that must be withdrawn is taxable and subject to an early withdrawal penalty if you are under 59½.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Ted's Table

Technical Terms Annuity Matching contribution Summary plan description

TB: Such a delay is common if the plan is transferring from a "balance forward" recordkeeping system. These systems track everything in dollars rather than fund shares. Waiting for accounts to be updated is a common problem with this type of system.

One way to tell if the company being replaced was using this type of system is to check one of your prior account statements. If all activity is reported as dollar amounts rather than shares, it's likely the old investment company used a balance forward system.

If activity has been reported as fund shares, this probably isn't the reason for the delay. In this instance, there is greater reason for concern because it is due to something other than the old recordkeeping system.

In either case, I would ask the person who oversees the plan for your company why the transfer has been delayed and when it is likely to be completed. You should consider contacting the Department of Labor office closest to you if you can't get an answer or if the transfer is not resolved shortly.

TB: What you have been told is not correct. There are many other alternatives among the large mutual fund providers where your money can be invested directly into mutual funds. Also, there are third-party administrators who handle plans for your size company that do not exclusively offer variable annuities. You could check the yellow pages in your area. Another possibility is to ask some people at companies of your size in your area what kind of investments they have (mutual funds or variable annuities) and who they use to handle their plans.

Related Reading Unwanted Refunds for Highly Paid 401(k) Participants Long Day's Journey into ... Your 401(k) The ABCs of Annuities

TB: The company is required to follow the withdrawal rules contained in the plan document. These rules should be explained in the summary plan description, which the employer was required to give you when you joined the plan. I recommend looking at the summary to see what it says about your right to withdraw this money from the plan. Because the company offers matching contributions, they may require you to leave the money in the plan for a specific period, such as two years, before you may withdraw it. This is legal if that is how the employer has structured the plan.

You are also required to withdraw the applicable investment income when you withdraw a portion of the after-tax contributions. The investment income that must be withdrawn is taxable and subject to an early withdrawal penalty if you are under 59½.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every week. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.