MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Employer 401k Contributions Clawback

DPNDPN
edited January 2012 in Off-Topic
Hi all,

Over the weekend my girlfriend received a disbursement statement on her old 401k form a job that she voluntarily quit over five years ago. The notice said her 401k balance is about half of what it was in September 2011. She never rolled it over after leaving. The employer was contributing 1:1 until she left.

Anyway after calling the 401k admin it turns out that the employer is just now taking their contributions back (1/2 her balance) because she left just prior to working there for three years.

It appears that they were holding the account open in the event she came back to work within 5 years. It seems suspect to me but she was told they can do it since she was there less than three years.

What if she had rolled it over to a different brokerage. Would they have been able to demand she pay it back, or prevented her from moving it at all?

I guess I'm just a little more pissed about it than she is...

DPN

Comments

  • fundalarmfundalarm
    yes, even if she moved the moneys out, she would have been liable for the cash. they didn't handle it gracefully or efficiently however.
  • msf
    That five year grace period is not something I was familiar with, but it looks like that's required by the IRS (see the Important Note in the first section of the IRS page).

    From what the IRS writes, it sounds like employers can immediately take back the unvested matching funds if the former employee rolls over the money to a different brokerage.
  • [Deleted User]
    The user and all related content has been deleted.
  • DPNDPN
    So the forfeiture can only occur After the five year period...
    I wonder if there is a statute of limitations on how long after the five year period they can take their funds back.

    E.g. Twenty years down the line when all is great and we have our retirement plan in place and are prepared to start withdrawing funds, Boom this old employer comes in and takes 1/2... that would be a hard lesson.

    DPN
  • InvestorInvestor
    It looks like your girlfriend's employer match was not fully vested and after a period of waiting they clawed it back. They do not remove the unvested monies from 401k immediately in case, former employee return to work for the same employer in which case typically the vesting of previous employer contributions would continue to from where it was left off.

    This is actually normal. You can read about the details regarding the conditions of vesting and what would happen to unvested monies in the 401k offering statement. It seems that she never read it.

    Even if they did not clawback, she would not get unvested portion. Last year, I rolled over 2 former 401k plans. Each had some unvested monies and I had to forfeit that portion when rolling over to IRA.
  • InvestorInvestor
    edited January 2012
    Reply to @DPN: It should be in the 401k plan documents. The lesson is to read the docs. Unvested monies were never truely yours!
  • AnnaAnna
    edited January 2012
    Reply to @Investor: Actually, it can be a problem because young people often don't pay attention. Then years later when they do start assessing their status, information is hard to get. In my case, I worked for U. Utah for a few years under a TIAA-CREF 403b and I also worked for U. Texas for a few years under a VALIC 403b. About 2004, I realized that although I was getting yearly statements, I wasn't sure of the vesting. What brought it to my attention was a VALIC disclamer saying that they didn't have vesting information.

    This was easy to straighten out between U. Utah and TIAA-CREF. Everyone responded immediately - I was vested. With VALIC and U.Texas, U.Texas sent me a letter that I was vested and told me to give it to VALIC, VALIC didn't want it and said that they did this paperwork only when someone tried to collect. Then they contacted Texas. Bottomline, they refused to get this information for me unless I withdrew from the funds.
  • msf
    Reply to @Anna:
    Ultimately, it is the plan sponsor (employer) responsible for the terms of the plan, so technically VALIC was correct in saying that it had nothing to do with vesting until someone tried to move the money. (At that time, they'd have to look up and apply the employer's plan's rules.)

    That said, TIAA-CREF seems to be a company very interested in ensuring that employees understand their plan. I have a relative with a TIAA-403(b), and her university has TIAA-CREF rep(s?) available for one-on-one discussions. My relative asked me to sit in for an hour long discussion with the rep to get an understanding of my relative's plan. (Though I have to admit that all the different moving parts - supplemental, multiple rates on traditional, multiple withdrawal policies, etc. - do not make for easy comprehension, no matter how much help is provided.)
  • Sven
    Reply to @Investor: Often the employers failed to explain the concept of 'vesting' and their consequences in clear and understandable language to new employees. Company matching is what many companies like to boost.

Sign In or Register to comment.