Despite the present trauma associated with all financial markets, most boomers still harbor an aspiration to retire on-time and in good financial shape. However, since October 2007 they’ve witnessed a decline of almost 23% in the worthiness of these 401(k) plans and are frightened at the chance of further losses. Confidence within their investment providers is at an all-time low and they’re looking for new ways to protect their retirement savings.
Brokerage firms and plan administrators have inked a great job of keeping secret from small businesses the capability to withdrawal or transfer certain 401(k) money while still working. In reality, when asked about withdrawing money from employer-sponsored defined contributions plans – even ones where in fact the employer does not match or make profit-sharing contributions – How to get an ERISA bond for 401k plan brokerage firms and administrators have reported that withdrawals aren’t permitted ahead of retirement. It is completely inexcusable that the brokers and administrators haven’t volunteered the information that a simple, no-hassle, cost-free change in a plan permits in-service withdrawals and transfers.
Anything rolled into a plan from another qualified plan can be withdrawn or transferred without restriction by the employee. Yet, the investment managers and administrators need a mountain of paperwork and refuse to cooperate with employees wishing to make the most of this privilege. They delay and hassle employees until many give up in disgust. In the meantime high fees, risky choices and zero advice is provided. The us government regulators and FINRA (the self-regulatory organization governing brokerage firms) turns a blind eye toward these abuses.
ERISA provides that matching contributions and profit-sharing supplied by employers can be withdrawn or transferred at any age by employees while still working and participating in the plan BUT they allow employers to stipulate an age if they desire. On the advice of the brokerage firms and administrators, most smaller businesses have stipulated that normal retirement should be reached before such withdrawal are allowed. The prohibition on withdrawals is just in the most effective interest of the brokerage firms since they charge fees based on the amount of money in the 401(k) plan. Naturally the little business owner is uninformed of this ERISA in-service withdrawal provision and those charging the fees aren’t planning to volunteer the information. In the meantime, employee participants, especially those nearing retirement, are taking unsuitable risks, paying high fees, choosing from limited options and getting zero investment advice.
ERISA does not allow voluntarily employee contributions to be withdrawn from 401(k) plans while continuing to work on the employer until age 59½ is reached. However, the employer is permitted to stipulate an older age which most have inked on the advice of the broker and administrator. Again, hard-working employees and employers are unacquainted with this more liberal withdrawal option permitted by ERISA. Employers are taking undue risk as trustees and fiduciaries of the 401(k) plan because the most effective interest of employees is not being served. The result is more risk, higher fees, fewer options and endangered retirements.
The greed of Wall Street is alive and well generally in most 401(k) plans for small businesses. The firms managing the money harass employees who want to transfer their money with extra paperwork, delaying tactics, misinformation and outright untruths. The capacity to make in-service, non-hardship withdrawals is absent most plans of small businesses mainly because money managers value their fees a lot more than the most effective interest of these clients. It’s shameful that the regulators sit on their hands and condone such behavior – yet they do.
Small business owners and their workers must rise up and take matters into their own hands. They employ the plan administrators and can fire them – exactly the same holds true for the brokerage firms that manage the money entrusted to them. To safeguard themselves and their workers, business owners must add the in-service withdrawal provision authorized by ERISA and they need to insist that brokers and administers cooperate in assisting concerned employees withdraw or transfer their money to considerably better options. The in-service withdrawal provision can be added at the direction of the employer free of charge and without delay by simply informing the 3rd party administrator to alter the prototype plan. To accomplish otherwise is irresponsible and exposes the employer to undue liability as a trustee and fiduciary. Employees should absolutely insist in writing that employers get this change for their 401(k) plan.