Is company contribution discretionary?

[sjsu1982]

Hello! I live in the state of Washington. For several years my wife's employer has paid an amount equal to 3% of her salary into a 401k plan - not a match, just a straight contribution. The money was paid in a lump sum in the following calendar year, for example, her contribution for 2006 was paid in March of 2007.

The payout for 2007 has not happened yet, and we were told we'd be lucky to get it since it is "discretionary" for the company to make. Since she has resigned from the company we are also worried about getting the amount accrued in 2008 prior to her resignation.

Is is legal for them to decide not to pay?
How about the timing of their contribution (the year after)?

[cbg]

If the plan document says it's discretionary, it's discretionary. If the plan document says it's not discretionary, it's not discretionary.

The same goes for the timing. It depends on what the plan document says.

[sjsu1982]

What if the plan document is silent on whether it is discretionary or not? Timing too. It is a small organization and not run very professionally!

[cbg]

I promise you, the actual plan document is not silent on whether it is discretionary or not. The summary you receive may not include that information but the actual document itself is not.

If it is, then your company has bigger problems than you think.

[sjsu1982]

The organization, a private school, has tremendous problems. The principal, the school secretary, and 15 out of 17 teachers (including my wife) resigned. I don't see that they can make it past December, so I want to get my wife's 401K money before they go bankrupt.

[Beth3]

If your wife has resigned, she can contact the school to withdraw her 401(k) funds any time she likes. She should ask the employer to send her a Distribution Form.

FYI, 401(k) funds are sent to the employer's investment advisor to be invested in the funds your wife selected. Employers cannot call back the money, even if they go bankrupt. Unless the school has not been forwarding the funds to the advisor (and if they're not doing that, they're in BIG TROUBLE), then you have nothing to worry about. I presume all funds are accounted for in your wife's 401(k) statement, otherwise you'd be asking different questions.

If the employer's contribution is discretionary, then it's discretionary, even if they have been in the habit of making a 3% contribution. If the school makes a contribution for 2007, your wife will be eligible for that even if she has terminated and even if she has withdrawn her 401(k) funds. That assumes your wife worked sufficient hours in 2007 (typically, at least 1000 hours) to be eligible for the contribution as defined in the Plan Document.