401K loan mistake by Fidelity

[mhyder1966]

What is the name of your state (only U.S. law)? North Carolina

I have a 401k and IRA with fidelity. On Dec. 13th 2015 I transferred money from my 401K to my IRA. The fidelity representative made a mistake and closed out my 401K loan. I noticed the mistake on Jan 14th 2016. I called Fidelity and asked them to go back and listen to the audio which they told me would take a couple of days. Finally on Feb 24th 2016 and several phone calls they told me that they had made the mistake and would work on getting it corrected. On March 14th 2016 they told me that they couldn't reverse the mistake. So instead of paying money to my 401k loan I'm going to have to pay at least $4500 in taxes.

I know that the mistake was 100% Fidelity's and I think that I have a case against them but have no clue on how to keep pursuing it.

 

[OHRoadwarrior]

So why did you not correct it when you received the check?

 

[davew128]

So why did you not correct it when you received the check?

There was no check. The plan balance was transferred to an IRA. The issue is that in doing so, the outstanding loan on the 401(k) became payable and due.

OP, I am questioning how it is that you were able to do in an inservice transfer from the plan to an IRA. I say that because if you were separated from service, the loan became immediately payable ANYWAY.

 

[FlyingRon]

The problem is when they closed the 401K the loan amount became an early distribution and taxed and subject to the 10% penalty.

I'd still rattle cages farther while also starting the complaint process to FINRA.

 

[mhyder1966]

In Feb of last year I got laid off and in April I transferred money from my Company's 401K through Fidelity to a IRA with Fidelity. I still had a 401k loan that I was making payments on each month. Several times through out the year I would transfer money from my 401K into my IRA. In Dec the representative transferred money to my IRA but defaulted my 401k Loan. I didn't notice this until I looked online in Jan. I called Fidelity and disputed this. They told me that they could go back to the recorded transaction. They first told me it would take a couple of days, then 5 days, then 5 business days, 20 days, 20 business days and finally when ever they can get to it. So 41 days later they called me and told me that it was their mistake and would look into getting it corrected. I called once a week and they finally told me on March 14th that they couldn't reverse the mistake.


So instead of paying $3800 to my 401K, I'm now stuck with paying taxes on an additional $13000. Also I had Obamacare insurance while I was between jobs so with the addition $13000 in income I was have to pay an additional $1200 for the 7 months I had insurance through the government.

So I don't know if I should file a tax extension in hope of getting this corrected. Or do I pay the addition tax and sue Fidelity? Or do I just pay for Fidelity's mistake.


My thing is Fidelity made the mistake and is showing no effort on correcting it. I just feel that Fidelity should be punished for this mistake not me.

 

[davew128]

What does the plan document say? Its common that terminated employees are required to move their balance out of the plan, either as a distribution or to another retirement vehicle.

What I'm getting at is its not entirely clear that Fidelity was wrong to do what they did.

 

[tranquility]

What does the plan document say? Its common that terminated employees are required to move their balance out of the plan, either as a distribution or to another retirement vehicle.

What I'm getting at is its not entirely clear that Fidelity was wrong to do what they did.

Some plans allow for the payback of loans when there is a separation for some length of time. The OP was paying on the loan and then getting the money funneled back into this IRA. The plan administrator called the loan giving the OP income and that was not the OP's instructions.

But, the re-payments were going on for quite a while since separation. That is the unusual part for me.

 

[cbg]

And this is why I have my retirement funds with Vanguard.

Just sayin'.

 

[mhyder1966]

When I lost my job. I contacted Fidelity and got a agreement to keep paying on the loan monthly. At that time I moved 95% of my 401K over to an IRA since I had more investment options. I also was allowed to move money from my 401k to my IRA at anytime. I moved money 3 times throughout the year before the Dec 14th mistake. What happen was the representative transferred the money and also closed my loan by mistake.

 

[FlyingRon]

Again, file a FINRA complaint. Then keep rattling cages up the food chain at Fidelity. They should not have terminated the 401k. They need to make it right preferably by reinstating the account. Just saying "my bad" is not acceptable.

 

[davew128]

Again, file a FINRA complaint. Then keep rattling cages up the food chain at Fidelity. They should not have terminated the 401k. They need to make it right preferably by reinstating the account. Just saying "my bad" is not acceptable.

This isn't a FINRA issue, more of an ERISA issue. I say that because its not a securities item, its a qualified plan problem.

 

[cbg]

Agree with Dave. If the OP is looking for the appropriate regulatory agency, it would be the US DOL, not the SEC.

 

[davew128]

I would also extend the return and look for a tax professional who can research case law or IRS rulings where there might be a waiver of either the penalty or 60 day rollover period. Just don't expect that level of help right now for obvious reasons.

 

[tranquility]

I assume the payback time was less than 5 years so, just out of curiosity, how did you secure the loan after the rollover into an IRA?

 

[mhyder1966]

I assume the payback time was less than 5 years so, just out of curiosity, how did you secure the loan after the rollover into an IRA?

Not exactly sure what you are asking but I had the loan for 3.5 years. Fidelity let me keep paying on the loan since I just moved money over to an IRA. So the security of the loan was my Fidelity IRA.