Limiting the hassle of abandoned 401(k) plan

Your Money

September 30, 2007|By Janet Kidd Stewart

When Anthony Cosgrove left a job with a small Connecticut payroll company in 2005, he left his 401(k) retirement account behind to avoid a tax liability for a loan he had taken out against his savings.

Soon after, the company, Abacus Payroll Systems Inc., went out of business and Cosgrove, 42, has been mired in red tape since, as authorities, including the Labor Department, sort through the mess. He wants his money, but can't get it.

Abandoned plans represent a tiny percentage of all company benefit programs, but they serve as a cautionary tale for retirement savers because they can drag on for years while denying participants access to their savings.

Most often, the plans are left behind by owners of small, defunct businesses who did not distribute the funds or appoint a new trustee to handle the plan.

That leaves the Labor Department to comb through the records of the plan and get court approval for winding it down. Typically, investors eventually receive their money back.

Each year, the Labor Department estimates, about 1,650 plans with nearly $900 million in assets covering 33,000 workers are classified as abandoned. New regulations in 2006 were supposed to speed the process for getting funds distributed out of abandoned plans, but Cosgrove is still waiting.

Labor Department officials won't comment on the Abacus case because it is continuing.

Michael Roach, an official for a third-party administrator to the plan, describes it as an abandoned plan. Roach, a principal with Pension Consultants Inc. in Farmington, Conn., said his firm is waiting for clearance from the Labor Department to disburse the 401(k) money, now being held with Dutch financial services conglomerate ING Group.

A spokesman for ING U.S. Financial Services confirmed that the company provides record-keeping services for the plan, but declined to comment further.

What's Cosgrove's hurry, with his traditional retirement age more than two decades away?

He now has a startup payroll firm of his own, Integrity Payroll of Rocky Hill, Conn. He's also working two part-time jobs to pay bills while the new company gets off the ground, and would like to use his retirement money (about $13,000) to help provide a cushion.

Say what you will about the wisdom of withdrawing money from retirement accounts early, but 401(k) accounts do belong to their account holders, who have the right to pay penalties and take the money.

What should investors do to protect themselves?

First, retirement plan participants should keep detailed records of account balances and correspondence from the plan, said Nell Hennessy, chief executive of Fiduciary Counselors Inc. in Washington. This is even more important for workers at small companies, where the owner often serves as the plan's trustee. That arrangement leaves workers more vulnerable to potential problems, including fraud or inaccurate record-keeping, Hennessy said.

Not sure who's responsible for your plan? Ask for a copy of the summary plan description.

Next, if you fear your plan has been abandoned, speak up quickly. You can call the Labor Department's Employee Benefits Security Administration, which enforces the federal law that sets the standards for retirement plans in private industry, at 866-444-3272. Then start a paper trail to EBSA and the record-keeper of your plan, specifically requesting the release of your funds.

"If there is an institutional trustee involved, [it is] likely subject to the oversight of a state regulator, such as a state department of insurance or banking regulator," said Tim Meehan, a fiduciary adviser in suburban Minneapolis.

Hiring an experienced attorney to advocate for you in the matter might make sense if you have a large 401(k) plan at stake. Finally, hang on to the quarterly statements you receive from the firms holding your 401(k) money.

Have a retirement question? Write to yourmoney@tribune.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611.

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