• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

401K Trapped in Former Employers Plan

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

#16
I wouldn't count on it being allowed. While I can't say it's out and out impossible that you could do a transfer to an IRA, it's not very likely that it's allowed by plan rules.

By all means investigate the possibility. But that shouldn't be the only egg you have in your basket, because the odds are very poor that it will come home to roost.
I’ve got to have some course of action. How can I be forced to keep my own money invested with a company I don’t wish to do business with? Only reason I did in the first place is because that’s who my company chose to handle our 401k. I can’t take a loan, make contributions or withdraw it. How is it fair to me to make me leave it sit for 18 1/2 more years?!!
 


#17
The plan to which you are currently making contributions is immaterial. If your current employer owns the plan from which you want to take the distribution, then you are barred BY LAW from taking a distribution except under the exceptions I already noted. It doesn't matter a damn if you are currently making contributions to it or not.
My previous employer is it’s own entity from GE, therefore GE should not be the owner of the plan. I’m still researching this and need to talk to my previous HR and benefits department though to get more details. This was something I just found out today, so it’s still early. I just figured I would try to get as much advice as I could before I talk to my previous employer.
 

cbg

I'm a Northern Girl
#18
No, you really don't "have to have some course of action". No one ever said life was fair. Your employer has to follow the regs, and the Feds REALLY do not want pre-tax money from retirement plans being distributed early.
 
#19
My previous employer is it’s own entity from GE, therefore GE should not be the owner of the plan.
Unfortunately that is likely not the case. SEC filings indicate that GE is a corporation that is the parent of a group of corporations that file a consolidated income tax return. The rules for consolidated returns require that ALL eligible subsidiaries of the parent must be included in the consolidated group. Very generally an eligible subsidiary is one in which the parent owns either directly or indirectly through another subsidiary at least 80% of the vote and value of the subsidiary. The subsidiary generally must be a domestic corporation and there are few special types of corporations that are not eligible to be included in the consolidated group. Thus, if the former employer is a domestic corporation and is owned 100% by GE it is almost certainly a member of the consolidated group.

The reason that this matters is that Internal Revenue Code (IRC) section 414(b) states:

(b) Employees of controlled group of corporations.--For purposes of sections 401, 408(k), 408(p), 410, 411, 415, and 416, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563(a), determined without regard to section 1563(a)(4) and (e)(3)(C)) shall be treated as employed by a single employer. With respect to a plan adopted by more than one such corporation, the applicable limitations provided by section 404(a) shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary.​

In short, when you have a consolidated group, all the employees of the corporations in that consolidated group are treated as though they are employees of the parent of that consolidated group, and all the § 401(k) plans operated by any member of the group are treated as plans of the parent corporaton.

You said that the former corporation was owned 100% by GE when you worked there and that it is still 100% owned by GE now. Assuming that former employer is a domestic corporation this means that it is highly likely that the former corporation was always a member of consolidated group for the periods involved, both when you worked there and now. In that event, for the purposes of § 401(k) plans you would have been considered an employee of GE directly — the parent of the group — and that your 401(k) plan is considered to be a plan of GE directly, too. As you are now currently employed by the parent under these rules that would mean the restrictions on in service distributions to employees before they reach age 59 and a half would apply.
 

LdiJ

Senior Member
#20
I wouldn't count on it being allowed. While I can't say it's out and out impossible that you could do a transfer to an IRA, it's not very likely that it's allowed by plan rules.

By all means investigate the possibility. But that shouldn't be the only egg you have in your basket, because the odds are very poor that it will come home to roost.
Do you say that because you see it as a current employer plan even though its not part of their current plan, or for some other reason?
 

cbg

I'm a Northern Girl
#21
In my experience, which as you know is coming up closer to 40 years worth than I want to admit, the percentage of plans that allow active employees to make transfers to even qualified plans not sponsored by the employer is very, very low. I'm not going to go so far as to say it is zero, although I have never personally seen or sponsored one that did. But the OP is an active employee; if the plan is considered an current employer plan the OP is still subject to the rules of the plan document and the distribution rules contained therein. Everything he has posted so far suggests that it is considered a current employer plan. If he finds it's not, okay then; maybe there is a loophole somewhere. But if it is, there does not "have to be" a way around the regulations just because he is in need of money just now.

A case in point. My employer completely closed one plan more than fifteen years ago. No contributions have been made to that plan by anyone since 2001. Employees who participated in that plan are grandfathered; they will not lose that benefit. However, they still can only take distributions according to the rules of the plan. It is not a free checking account that they can draw on at any time, simply because contributions are no longer being made. It is still a qualified plan and subject to qualified plan regulations.

And, less than a month ago, I was involved in a case just like the OP's - an employee wanted to take a withdrawal that is not allowed by the regs and insisted it was "his money"; we had no right to withhold it from him. Except that we do have both the right and the duty to adhere to both the IRS regs and the plan rules, which as you should know if you don't are set in stone once they are established. Even if the employer once had some choice in the matter, once the choice they made is set into the plan document they cannot deviate from that choice without changing the plan document. Which is a very big deal to do.
 
#22
Thank you all for the advice in this thread. I received further clarification from my former employer’s benefits team. Basically, as has been stated by multiple people already, my plan is still under the “controlled group” which is subject to the IRS regs stated in this thread. I can only take a partial hardship withdrawal. Also, if I were to take a hardship withdrawal I won’t be able to contribute to my current plan for 6 months. Not a big deal, but worth noting. I just hate the fact I can’t at minimum roll my balance over to my new plan. I don’t quite understand why though. I have inquired about rolling it over to an IRA, but I am waiting for a response on that.
 

LdiJ

Senior Member
#23
In my experience, which as you know is coming up closer to 40 years worth than I want to admit, the percentage of plans that allow active employees to make transfers to even qualified plans not sponsored by the employer is very, very low. I'm not going to go so far as to say it is zero, although I have never personally seen or sponsored one that did. But the OP is an active employee; if the plan is considered an current employer plan the OP is still subject to the rules of the plan document and the distribution rules contained therein. Everything he has posted so far suggests that it is considered a current employer plan. If he finds it's not, okay then; maybe there is a loophole somewhere. But if it is, there does not "have to be" a way around the regulations just because he is in need of money just now.

A case in point. My employer completely closed one plan more than fifteen years ago. No contributions have been made to that plan by anyone since 2001. Employees who participated in that plan are grandfathered; they will not lose that benefit. However, they still can only take distributions according to the rules of the plan. It is not a free checking account that they can draw on at any time, simply because contributions are no longer being made. It is still a qualified plan and subject to qualified plan regulations.

And, less than a month ago, I was involved in a case just like the OP's - an employee wanted to take a withdrawal that is not allowed by the regs and insisted it was "his money"; we had no right to withhold it from him. Except that we do have both the right and the duty to adhere to both the IRS regs and the plan rules, which as you should know if you don't are set in stone once they are established. Even if the employer once had some choice in the matter, once the choice they made is set into the plan document they cannot deviate from that choice without changing the plan document. Which is a very big deal to do.
Ok, I understand. You see it as still a plan with the current employer. My suggestion that the OP research a rollover was because I was unclear whether it was a plan with the current employer or a plan with a former employer.
 
#24
Ok, I understand. You see it as still a plan with the current employer. My suggestion that the OP research a rollover was because I was unclear whether it was a plan with the current employer or a plan with a former employer.
In this situation, though, for the 401(k) rules if the former employer is part of the GE consolidated group then both the former and current employers are regarded as being part of the parent company GE and in that case there is no distinction to make between former and current employer.
 

LdiJ

Senior Member
#25
In this situation, though, for the 401(k) rules if the former employer is part of the GE consolidated group then both the former and current employers are regarded as being part of the parent company GE and in that case there is no distinction to make between former and current employer.
I understand that now. It was not clear to me when I made my suggestion that research be done.
 
Sponsored Ad

Top