forced 401K transfer to variable annuity


S

Scott

My employer had a traditional 401K plan which I have accumulated a
sizable vested balance.

The company now wants to change 401K providers to one which is a 401K
group variable annuity with an annual mortality and expense risk
charge on the account balance.

I do not care for the death benefit on my current vested balance so
want to roll that 401K amount into a roll-over IRA with a different
institution.

The company is implying that I have no choice and must roll my vested
balance into the new variable annuity (and pay the associated annual
mortality and expense risk charges on that vested balance). Is this
legal? Are my only other choices early withdrawal of the 401K or
leaving the company? (both alternatives seem rather harsh).
 
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B

BMS

Ask and check the plan documents for the ability to make a partial
in-service withdrawal. If you can then roll it over to a rollover IRA.

Ask what your choices are directly, don't go by "implied" ideas. It is
simpler for the plan sponsor to get everybody do the same thing. There will
be meetings and ask your questions.
 
S

Scott

Thanks for the reply. Plan documents are proving hard to get ahold of
(seems our HR didnt have a copy). The basic question is: can the
company elect to make an investment decision (i.e. buying the death
benefit insurance) with the employees own funds (no company match)
without the consent of the employee?
 
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B

Brent D. Gardner, ChFC

Scott said:
My employer had a traditional 401K plan which I have accumulated a
sizable vested balance.

The company now wants to change 401K providers to one which is a 401K
group variable annuity with an annual mortality and expense risk
charge on the account balance.

I do not care for the death benefit on my current vested balance so
want to roll that 401K amount into a roll-over IRA with a different
institution.

The company is implying that I have no choice and must roll my vested
balance into the new variable annuity (and pay the associated annual
mortality and expense risk charges on that vested balance). Is this
legal? Are my only other choices early withdrawal of the 401K or
leaving the company? (both alternatives seem rather harsh).
Group Variable Annuities do not normally have similarly priced M&E as an
individual contract. They often DO have higher expenses for administration.
This is one way for an employer to subsidize the cost of the plan, and it is
very common among smaller plans where every administrative dollar comes out
of the owners back pocket.

Legal? Yes.

The real difference to you is likely to be negligible. Plans funded with
mutual funds have expenses, too, and they are often levied against the NAV,
so what you're worried about may very well be a wash.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

Si vis pacem para bellum!

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.
 

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