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Author: jack2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: 401(k) handling Date: 1/18/1998 7:02 PM
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This is the first time I have looked at this board, and I did not find anything in the archives. My apologies if I missed something relevant.

A good friend got laid off from a job at about the time the boss sent all of the employee 401(k) funds to be managed by a money manager who was a friend of his. My friend wanted to manage her money herself, perhaps by converting to an IRA, but he said she could not do that -- her funds had to go with all of the other funds to be managed by his friend the money manager. We were skeptical at the time and we remain skeptical, but we know next to nothing about this. We wonder if anybody knows if she can take control of her funds and move them to an IRA account with something like VG Index 500, under her control from then on, from a collection of load funds they were put into. We realize that she has already paid commissions through the loads and may have to pay more, but it is the concept we are asking about. What rules govern this sort of thing, and where do we find them? Thanks for any help.

Jack

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Author: JeanDavid Big funky green star, 20000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1372 of 76397
Subject: Re: 401(k) handling Date: 1/18/1998 9:51 PM
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<A good friend got laid off from a job at about the time the boss sent all of the employee 401(k) funds to be managed by a money manager who was a friend of his.>

I am neither an attorney nor a tax advisor, but it is my understanding that if you are no longer an employee, you can roll over the contents of your 401k to an IRA.

<My friend wanted to manage her money herself, perhaps by converting to an IRA, but he said she could not do that -- her funds had to go with all of the other funds to be managed by his friend the money manager.>

IMAO, this is either ignorance, misunderstanding, or fraud. The more they tell you you cannot roll over your money, the more you should insist on doing so. If they mean that you would be foolish to take the money, they are right. You should never touch the money nor have it pass through your hands or checking account (government will snatch your current income tax level + 10% if you are not extremely careful). You should arrange to have a custodian-to-custodian transfer into the new IRA that you should start at a deep-discount broker.

<We were skeptical at the time and we remain skeptical, but we know next to nothing about this. We wonder if anybody knows if she can take control of her funds and move them to an IRA account with something like VG Index 500, under her control from then on, from a collection of load funds they were put into.>

She can definately take that control. Whether she should invest in a mutual fund is another matter that can be dealt with at another time. If she insists on a mutual fund, the Vanguard S&P500 Index fund seems to be a good choice.

<We realize that she has already paid commissions through the loads and may have to pay more, but it is the concept we are asking about. What rules govern this sort of thing, and where do we find them? Thanks for any help.>

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1374 of 76397
Subject: Re: 401(k) handling Date: 1/19/1998 12:31 AM
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<A good friend got laid off from a job at about the time the boss sent all of the employee 401(k) funds to be
managed by a money manager who was a friend of his. My friend wanted to manage her money herself,
perhaps by converting to an IRA, but he said she could not do that -- her funds had to go with all of the other
funds to be managed by his friend the money manager. We were skeptical at the time and we remain
skeptical, but we know next to nothing about this. We wonder if anybody knows if she can take control of her
funds and move them to an IRA account with something like VG Index 500, under her control from then on,
from a collection of load funds they were put into. We realize that she has already paid commissions through
the loads and may have to pay more, but it is the concept we are asking about. What rules govern this sort of
thing, and where do we find them? Thanks for any help.>

This is extremely dubious. If your friend is no longer employed by that company--voluntarily or otherwise--they are legally obligated to give up the money upon her demand. There simply is no other legal option to the company. And if she demands (by doing the requisite paperwork with an IRA trustee, for instance, who will then forward required paperwork to the company in question) a direct transfer of her money (which is far preferable to a rollover through her hands of the money), then they must do that--they can not even send her the money directly.

Your friend should do a number of things, in this general order: find out the name of the head of her state's Department of Labor; find out who in the SEC handles such problems (see the Consumer Information Center at http://www.pueblo.gsa.gov/ for an excellent booklet that gives addresses and phone numbers for all this kind of thing); talk (and write a letter saying the same thing) to her company once more, and invite them to explain their attitude to <name of Dept Labor> and to <name at SEC>. She should be prepared to write to both <name>s if she doesn't get _immediate_ acquiscence on their giving up her money, and she should be prepared to write to <names> if the money doesn't actually get transferred promptly, even if they acquiesce.

This is not simply ignorance on the part of a Plan Administrator; this is fraud, and it shouldn't be tolerated for a minute.

Hope this helps.

Eric Hines


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1376 of 76397
Subject: Re: 401(k) handling Date: 1/19/1998 9:10 AM
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Greetings, Jack2, and welcome.

<<A good friend got laid off from a job at about the time the boss sent all of the employee 401(k) funds to be managed by a money manager who was a friend of his. My friend wanted to manage her money herself, perhaps by converting to an IRA, but he said she could not do that -- her funds had to go with all of the other funds to be managed by his friend the money manager. We were skeptical at the time and we remain skeptical, but we know next to nothing about this. We wonder if anybody knows if she can take control of her funds and move them to an IRA account with something like VG Index 500, under her control from then on, from a collection of load funds they were put into. We realize that she has already paid commissions through the loads and may have to pay more, but it is the concept we are asking about. What rules govern this sort of thing, and where do we find them?>>

JeanDavid and Bacon gave you some excellent guidance. I can't add much except to point out that her ex-employer is more likely to be misinformed and ignorant about 401k distributions rules as opposed to deliberately fostering fraud. That is common with small employers. IMHO, a simple, polite letter to the current plan administrator requesting the administrative procedures that entity uses for a direct transfer of the funds to an IRA is more in order than a threatening letter. Use the latter only if the first request for information is rebuffed, which is highly unlikely. Armed with the administrative procedures, you should be able to accomplish the transfer with the least possible hassle.

Regards.....Pixy

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1386 of 76397
Subject: Re: 401(k) handling Date: 1/19/1998 10:44 PM
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<...her
ex-employer is more likely to be misinformed and ignorant about 401k distributions rules as opposed to
deliberately fostering fraud. That is common with small employers. IMHO, a simple, polite letter to the current
plan administrator requesting the administrative procedures that entity uses for a direct transfer of the funds to
an IRA is more in order than a threatening letter. Use the latter only if the first request for information is
rebuffed, which is highly unlikely. Armed with the administrative procedures, you should be able to accomplish
the transfer with the least possible hassle.>

I agree that this approach is optimal (and I didn't mean to imply that the first letter should be a threat, tho that's not obvious in what I said--the invitation to explain to legal authorities was intended to come after she had tried to let the ex-employer do the right thing).

However, I don't accept that "misinformed and ignorant" is any excuse. These people (meaning the small company Plan Administrators, et al) are rational human beings, with a clearly defined set of responsibilities. This stuff is not rocket science. I'm just a poor, dumb pogue from Las Cruces, but I learned this stuff well enough to turn my small company's (23-40 people) Plan around and make it a decently performing plan. And I did it as an additional duty, not as something related to what I was hired for. If I can do this, so can they. If they don't, they're either lazy, incompetent, or crooked. In any of these choices, the company has cause for firing them. Yeah, I hold these people to high standards. They're responsible for managing not just other people's money, but their ability to retire comfortably. There can be no ordinary standard for people in that role.

Eric Hines


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1395 of 76397
Subject: Re: 401(k) handling Date: 1/20/1998 9:29 AM
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Eric,

<<However, I don't accept that "misinformed and ignorant" is any excuse. These people (meaning the small company Plan Administrators, et al) are rational human beings, with a clearly defined set of responsibilities. This stuff is not rocket science. I'm just a poor, dumb pogue from Las Cruces, but I learned this stuff well enough to turn my small company's (23-40 people) Plan around and make it a decently performing plan. And I did it as an additional duty, not as something related to what I was hired for. If I can do this, so can they. If they don't, they're either lazy, incompetent, or crooked. In any of these choices, the company has cause for firing them. Yeah, I hold these people to high standards. They're responsible for managing not just other people's money, but their ability to retire comfortably. There can be no ordinary standard for people in that role.>>

Gee, why not tell us how you really feel? :-)

I agree that small employers have a higher obligation to their employees. Unfortunately, real life tells me few truly understand how their plans really work. As a result, employees have to be persistent in obtaining correct answers. Indeed, it's often far better to by-pass the employer and go directly to the plan administrator/custodian. They aren't the same usually, and the latter at least has a better understanding of what needs to be done. Is the employer at fault for this? You betcha! But it's not something that will change regardless of how much we scream.

Regards……Pixy



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Author: GEMacLaren Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1398 of 76397
Subject: Re: 401(k) handling Date: 1/20/1998 9:32 AM
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Eric --
Right on!
But I've found school administrators to be lazy and ignorant. (And they are the ones who mail YOUR money to your custodian.)
A polite letter at first, yes.
But don't let ignorance of others cheat you out of
25% of your nest egg.
That's what's happening to many teachers today.
-=Grant MacLaren=-


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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1400 of 76397
Subject: Re: 401(k) handling Date: 1/20/1998 8:43 PM
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Pixy,

<Gee, why not tell us how you really feel? :-) >

Sorry, sometimes this kind of thing just gets next to me.

<Indeed, it's often far better
to by-pass the employer and go directly to the plan administrator/custodian. >

I recommend this as a matter of course--that's what s/he's there for.

<They aren't the same usually, and the latter at least
has a better understanding of what needs to be done. Is the employer at fault for this? You betcha! But it's not something that
will change regardless of how much we scream.>

I disagree here. If we not just scream, but hold them accountable for their jobs, the performance gets better. And if we do it with a modicum of sugar, as you so often point out, it generally gets better sooner and more permanently. I just don't agree with the changelessness of it all.

Regards,

Eric


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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1407 of 76397
Subject: Re: 401(k) handling Date: 1/21/1998 7:02 PM
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Eric,

<<If we not just scream, but hold them accountable for their jobs, the performance gets better. And if we do it with a modicum of sugar, as you so often point out, it generally gets better sooner and more permanently. I just don't agree with the changelessness of it all.>>

I agree we must constantly hold the employer's feet to the fire to get the changes needed in plans. After all, the squaky wheel, etc. Problem is not enough employees do that, and one complainer is rarely enough to move the behemoth off its duff. Get four or five others voicing the same complaint, though, and then things begin to happen. Regrettably, most folks just flat out don't pay enough attention to their retirement plans to join in the fray. Leastwise, that's my observation over the past 15 years or so.

Regards…..Pixy


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