Employer closing out a 401k without notice

[tnvolstn]

Tennessee


My 65 year old mother called me today and said that her employer (an upscale resturant), decided that they weren't going to offer a 401k plan anymore. None of the employees were given an option to move their money. They were just sent a check with the early withdrawal fee already taken out.

Is there anything illegal about this or is it just unethical?

Can she put this money into an IRA and get her early withdrawal penalty back?

Thanks

 

[tranquility]

Are you sure it was a penalty and not just withholding? If it was a penalty, they did wrong. If it was withholding, roll the amount into an IRA quickly and add the amount withheld to the IRA as well. (Otherwise it will be counted as income.)

 

[mjcrules]

The IRS requires a mandatory withholding min of 20% on any qualified retirement plan. Your mother has 60 days to reinvest the gross account balance (check amt + withholding) in another trusteed IRA retirement account. Any amount of the gross balance not reinvested into a qualified RA will be subject to the 10% excise tax + will be taxed at your Mother's ordinary tax rate. Make sure to keep all documents and copy of the check to insure the tax year this occurred. (2006 v. 2007) Employer, from reading your post at least, sounds like they could be a lil shady....so watch out for your mother by saving any and all related documentation.

 

[cbg]

Your mother should also check VERY carefully to make sure she was not sent prior notification, possibly as part of another mailing, and did not notice. (That happened to me once.) If she was sent the forms to roll it over to another qualified plan and did not return them, the employer's action was just about the only one they legally COULD take.

 

[tnvolstn]

Thank you all for your replies. I am still trying to find out what went on here.