Wednesday, July 12, 2006

401-K Accounts - Beware!

If you do not learn something new at least every day, then something is wrong. 401-K accounts have been offered by employers for some time now. I never questioned their status until about three years ago. I have always invested my portion in non-company securities and gone for a mutual fund. When I left one company, I did not think too much about the security of my 401-K. It was in a well-managed Fidelity fund. I did have one problem that I could not seem to correct and that was, I never received a quarterly statement.

I would call the toll free number of the institution that held the funds and ask for a statement and also to find out if they did indeed send a statement. The company I had worked for went bankrupt and I thought that the reason why I never received a quarterly statement was because the company was defunct. However the well known institution which actually held the security assured me they were responsible for sending quarterly statements and would send me one within two weeks. The problem was, over three years I never received one quarterly statement. I was not too worried since I had over a decade to correct the problem. However, I wanted a statement showing the number of units so that when I rolled the amount over, Fidelity would give me credit on the fees they charge on the units I held in my 401K. However, I gave up on this course of action.

I attempted to roll over this 401-K directly twice into my IRA, but the plan administrator never would process and/or approve the paper work. This past January I called the well known financial institution for my quarterly statement and to again complain about never receiving a statement. They did provide me with a balance, which was greatly different from what I showed. They then told me my account had been liquidated and I was sent a check. I never received a check nor did I receive a 1099 form.

Over the course of four months, I spoke with many people. One said the check was never cashed and they stopped payment on it. One told me the state of Indiana had it in unclaimed funds, but the state of Indiana did not have it. Then in late March I received my very first statement in a hand written addressed envelope. Rather curious as to why it was hand written rather than computer printed, but it was a statement none the less. The problem was it was only a balance, not a detailed statement listing transactions. I called again and finally received a detailed transaction. It showed some disturbing information. The administrator had been charging a very high fee. Then I received written communication that the institution had the funds. But when they were called, they said the State of Indiana had them.

Had I received a statement early on, I would have been notified that fees were being accessed and been able to take action immediately, but without a statement, it is difficult to validate anything.

Today the well-known institution with the help of one of their agents was able to track the problem down.

  • They verified that I had called many time about not getting a statement.
  • The institution still had the funds, but it took two hours to find them.
  • The institution’s computer system for mailing statements does not use the same database as that used for mailing quarterly statements. When I called all these past years, they verified the correct address by phone, but for some reason this was different from the address they had for mailing statements. They then sent quarterly statements a second time to the wrong address. They told me the plan administrator had given them the wrong address originally and this was the reason why I never received a quarterly statement. This came as a shock to them as well.
My question now is, was the plan administrator for the company I worked for perpetrating a con? Was he deliberately doing this in order to milk employee’s 401-K accounts? He is not returning phone calls.

The lesson I learned is do not leave funds with in a company's 401-K account when you leave the company even if the funds are in very good mutual funds. Roll them directly into an IRA as quickly as possible after leaving. Put them in an account you control!

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