Getting screwed re:401K--need help!

[CarolA]

What is the name of your state? Illinois

This is a really long story, so I'll just give the basics. If anyone needs any questions answered, just ask me here and I'll answer them as best as I can.

My husband started a new job in July. They have been garnishing his waged for a 401K for the past 8 weeks. We have been arguing it since the first paycheck because we didn't sign up for it, and we frankly need the money badly right now. They have just now stopped taking it out of his checks.

We have repeatedly asked for that money back, and have been denied. They told us we have to deal with the 401K company directly, and the 401K company told us we can't get the money until my husband no longer works there. And even then we'll be penalized a certain percentage.

According to human resources, they automatically sign all employees up for 3% after 30 days of employment. There is no paperwork you sign to authorize this. They say there is a paper explaining this in the introductory packet you get when you start there, but we can't find one.

Also, we specifically remembered signing a paper declining the 401K, and have a copy of it.

Is what they're doing legal? How can they take money from us without our permission? Don't we have every right to get our money back without penalty? What should we do? Thanks in advance!

 

[cbg]

Do you have a copy of the paper you believed you signed declining the 401k?

 

[jcg]

Do you have a copy of the paper you believed you signed declining the 401k?

Yes, my husband has one in his cubicle at work--I asked him to bring it home with him tomorrow. It basically was a quick paragraph describing the 401K and it's benefits, then there was a line that said to sign here if you wanted the 401K and what percentage you wanted taken from your pay, and then there was a second line that said to sign here if you decline the 401K at this time. We signed the on the second line.

Also, I'm going to have my husband ask some of the people who started at the same time he did if they got this supposed paper explaining everything when they were hired.

And I'm sorry if this isn't exactly the right area for this question, but none of the categories really seemed to apply to this situation.

Thanks again!

 

[jcg]

Umm..that was really odd.

Sorry, CarolA isn't me. I'm jcg. I didn't even notice that the first post was under that username. Sorry for the confusion. It's possible CarolA is my mother, since that's her name and this is her computer. I didn't even know she came to this site.

 

[cbg]

Carol, 401k's are VERY highly regulated at the Federal level. While the type of 401k where you are automatically enrolled unless you decline are more rare than the type where you have to actively enroll, they are legal and becoming more common. Also, I don 't know of any legal way the company can return the money that's already been deducted; the 401k regs are VERY clear on that. The money has been saved for you tax-free, and because of the tax-free status the regs are very definite. They cannot give it to you until your husband leaves the company, and if you insist on having it in hand (which you can do AT THAT TIME) there is a penalty. The company has NO control over this; if they violate that reg it could put the entire plan in jeopardy. I'm not kidding.

Unless the plan document specifically states that once in you can only drop at particular, specified times (possible but unlikely) they should be able to cease taking any more on his written request. If it is one of the plans where you can only drop participation at certain times, you may be stuck until the first of those times comes up. You need to get a copy of that decline to HR PRONTO, but if it didn't get to them in the first place I'm not sure what they can do.

I have a friend who is the expert to end all experts at 401ks. She knows the regs inside out and backwards. I'll pass your situation by her and see if she has any additional suggestions for you.

 

[jcg]

Thanks for the advice. To update you, I did get a copy of the sheet we signed from my husband. He got that copy from his file in human resources, so they obviously got it. They did tell him already that they wouldn't take out anymore money, so I guess it's not one of those that you can only stop at certain times.

Also, my husband asked 5 different people if they received any information regarding the 401K (since they all started together in training classes), and they said they didn't have that in their paperwork either.

So basically what happened was that they automatically enrolled him without his knowledge or consent, gave him no notification that this was automatic or what to do if he didn't want to participate, and now refuse to give us our money back.

I understand there are strict regulations due to it being tax free money and all, but how can they legally keep money that was taken without our knowledge? 3 of the people my husband talked to today want their money back too. If the company can't get the money back from the 401K company, shouldn't they give it to us out of their own pockets and then get the money back from the 401K company when my husband leaves the job? I just don't understand how this isn't considered stealing.

Sorry if I sound aggravated, but I'm just getting very frustrated with the whole situation. I'm not mad at you for telling me that I'm probably screwed, and I don't want you to think that's why I sound so angry. I'm actually very grateful for all your help.

 

[cbg]

How can they not give you the money back? Because the IRS says they can't.

There are NO circumstances, once the money is in a 401k account, in which you can get it back while you are still employed with the company. That is a STRICT IRS regulation. I'm not kidding when I say that if they were to do so and the IRS found out about it (and they would the next time the plan was audited) it could invalidate the entire plan for everyone.

My friend is out of town till tomorrow. When she returns I'll ask her if there are any implications I haven't thought of. But the HR office is not lying to you when they say they can't give the money back.

 

[cbg]

Okay, my friend got back early and I was able to talk to her about your situation. What I said above goes. There is NO provision in the applicable IRS code allowing the company to give you the money back. It doesn't matter that it was in error - the plan could be completely disqualified if they dispursed any monies in violation of the regs. The ONLY way you can get that money back is to either quit, or turn 59 1/2. And if you quit and demand the money paid out rather than rolled over into another tax-deferred plan such as an IRA, you will not only have to pay taxes on the money but there will be a penalty. (You CAN have it paid out at that time - you just can't have it paid out penalty-free.) As long as your husband is still employed by that employer, that money is in the 401k account. The company is not just making this up to be mean to you - they are following the law.

 

[jcg]

First of all, I really appreciate all of your (and your friends) help. And I don't mean to sound angry with you, because I absolutely am not. I'm just not understanding how anyone, even the government, can steal money from us (because that's what taking money from someone without their permission is) and be able to legally keep it. I know it may sound stupid to some, but this is actually bringing me to tears. I need this money--badly. I know that legally they can't take the money back out of the 401K, but don't they have some sort of obligation to return our money? Even if it's out of their own pocket? Couldn't they just give us the money themselves and just keep the 401K money when my husband is supposed to get it?

 

[cbg]

The money has not been stolen from you. It is being held, in your husband's name, in an interest bearing account. You will receive quarterly statements on how the investments are doing, and you probably (although I'd have to see the plan document to be certain) have the right to move it from one investment to another (within certain limitations - it has to be an investment that is open to the plan, not just any investment at all). Even if you never put another penny into the 401k account, you will still continue to get statements about this. You will ultimately be able to get it back; however, the tax-free status prevents the employer from doing it RIGHT NOW.

There is nothing in the law preventing the employer from leaving the money in the 401k but reimbursing you personally. However, there is also nothing in the law compelling them to do so. If they choose to do it, fine, but you can't force them to.

To be perfectly honest, I have to say this. While I certainly can't say for certain that the employer DIDN'T make the mistake here, if I had a dollar for every employee who claimed that they weren't notified of something and I was able to prove (not just disagree, PROVE) that they had been, I could retire two years early. On the other hand, if I had to give a dollar for every employee who claimed that they weren't notified of something and were later proved correct, I'd be out something but not even as much as I drop going out to dinner at my favorite restaurant. From an outsider's view, it is at least as likely that you were notified of the auto-enrollment and didn't notice it, as it is that the employer completely dropped the ball.

BTW, I understand that you're not angry with me; just frustrated with the situation. I'm not angry with you either; I'm very sympathetic to how upset you must be. But for your own sake, I think you need to stop beating your head against the wall. They've agreed not to take any more deductions out, and there is NO legal way you can force them to return the money that's already there until either your husband leaves their employ, he turns 59 1/2, or the company out of the goodness of their hearts decides to reimburse you. They cannot be compelled to offer a reimbursement in addition to the money in the 401k, and it would be illegal for them to remove it from the 401k at this time. You really need to move on instead of making yourself ill over something you can't change. I mean that in a friendly way.

 

[jcg]

You really need to move on instead of making yourself ill over something you can't change. I mean that in a friendly way.

I know, it's just hard to do when we're doing so lousy financially. We weren't exactly well-off before my husband lost his job, and now we're only making just above half of what he made before. We make about 25,000 dollars a year between us (gross, not net), and we have 2 kids! If we could get this money back we'd be able to spend it on our kids for Christmas. And while I know that technically the money is still ours, it's hard to feel that way when we can't touch it without being penalized.

Monday before work my husband and the other 14 people who started when he did are having a meeting to find out if anyone actually got that information sheet regarding the 401K, and who knew about the 401K. I know it's hard for you to believe not being in the situation, but it really seems like HR was wrong on this one. So far everyone my husband has talked to has said they do not have any information regarding the 401K in their introductory packets. Plus, they all got a sheet after 30 days with the company to sign that asked whether or not they wanted to sign up for the 401K, and most of them declined it, yet they were still signed up just like we were.

I have 2 more questions, if you don't mind answering. After that I'll leave you alone--I promise!

What approximately is the penalty for removing the money now? If it matters, there is approximately $250.00 in the account. And secondly, would the penalty be significantly less if we waited to take the money out until my husband quit? Thanks again for all your advice!

**edited to fix quote brackets

 

[cbg]

The risk to YOU, to get the money now, is having to pay all the taxes plus a 10% penalty. So out of the $250, you would lose the taxes plus an additional $25. The risk to the COMPANY, to give you the money now, is far greater; they risk having the right to offer a 401k plan to their employees revoked. That can't be overlooked; violating the law and giving you the money back REGARDLESS of who made the mistake, they could conceivably lose the 401k plan altogether. And that's not just an idle threat; the IRS takes 401k violations very, very seriously.

If you wait until your husband leaves the job, you will still have to pay all the taxes on it and you will still have to pay a 10% penalty, unless you roll it over into another tax-deferred account such as an IRA. Whether that will be signifcantly more than $25 or not will depend on how much the money has grown - how long it is that your husband is in that job and how aggressively it is invested.