Legality of Change of 401K plan

[baja]

What is the name of your state? CA

Hello, I work for a very small company that has a Safe Harbor 401K plan. The company contributes 3% of my salary to the plan every year which is fully vested at the time of the contribution. In addition to this, I defer some of my salary to the plan and have a range of investment choices to invest in as I see fit.

The company wants to change the plan to a 401k Profit Sharing plan. They are using a broker for the new plan who is a personal friend of the company CFO. I haven't been able to get any information as to the costs and expenses of the new plan, because it isn't in place yet. So I don't know how the new plan compares to the old plan in that respect. Although I do know that I will be assessed a back end load withdrawal fee from the old plan when that money is switched to the new plan. I don't know the structure of the new plan investments, or how much ability I will have in directing my monies as well.

Here is my question.

How much of the new plan can the company change from the old plan?

Can they move from the Safe Harbor plan where I am automatically vested on employer contributions to another vesting scheme where monies become vested over several years?

Do they have a duty to take into account and reimburse my account for any transaction fees that may be created because of the change?

Can they set up the new plan with a reduced number of investment choices or with reduced participation by me to direct the monies.

What about investment fees that will be different under the new plan?

Is there any other issues that I should be aware of?

Thanks in advance for any input and expertise that can be shed on the subject.

BajaWhat is the name of your state?

 

[moburkes]

As far as I know, all is legal. I am not sure, though, about the fees incurred from changing.

 

[baja]

Where specifically does the company's fiduciary responsibilities lie with respect to changing plans? It seems to me that if the plan changes it at least needs to be without detriment to my money or to my options to govern my money.

Doesn't the company have an obligation to choose the best plan for the employees, and to compare plans to one another by some sort of defineable criteria?

Thanks.

 

[moburkes]

From the DOL website:
Can a plan reduce promised benefits?
Defined benefit plans may change the rate at which you earn future benefits but cannot reduce the amount of benefits you have already accumulated. For example, a plan that accrues benefits at the rate of $5 a month for years of service through 2006 may be amended to provide that for years of service beginning in 2007 benefits will be credited at the rate of $4 per month. Plans that make a significant reduction in the rate at which benefits accumulate must provide you with written notice generally at least 15 days before the change goes into effect.
In a defined contribution plan, the employer may change the amount of employer contributions in the future. Depending on the plan terms, the employer may also be able to stop making contributions for a few years or indefinitely.

Finally, an employer may terminate a defined benefit or a defined contribution plan, but may not reduce the benefit you have already accrued in the plan.

How soon do you have a right to your accumulated benefits?
You immediately vest in your own contributions and the earnings on them. This means you have earned the right to these amounts without the risk of forfeiting them. But note – there are restrictions on actually taking them out of the plan. See the discussion on the rules for distributions later in this booklet.

However, you do not necessarily have an immediate right to any contributions made by your employer. Federal law provides a maximum number of years a company may require employees to work to earn the vested right to all or some of these benefits. (See tables below showing the vesting rules).

In a defined contribution plan such as a 401(k) plan, you are always 100 percent vested in your own contributions to a plan, and in any subsequent earnings from your contributions. However, in most defined contribution plans you may have to work several years before you are vested in the employer’s matching contributions. (There are exceptions, such as the SIMPLE 401(k) and the Safe Harbor 401(k), in which you are immediately vested in all required employer contributions.)
What are the plan fiduciaries’ obligations regarding the fees and expenses paid by the plan? Can the plan charge my defined contribution plan account for fees?
Plan fiduciaries have a specific obligation to consider the fees and expenses paid by your plan for its operations. ERISA’s fiduciary standards, discussed above, mean that fiduciaries must establish a prudent process for selecting investment alternatives and service providers to the plan; ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided; select investment alternatives that are prudent and adequately diversified; and monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices.

The plan may deduct fees from your defined contribution plan account. Plan administration fees and investment fees can be deducted from your account either as a direct charge or indirectly as a reduction of your account’s investment returns. Fees for individual services, such as for processing a loan from the plan or a Qualified Domestic Relations Order, also may be charged to your account.

For more information, see the Department of Labor brochure A Look at 401(k) Plan Fees at www.dol.gov/ebsa or call the Department of Labor toll free at 1.866.444.EBSA (3272).

 

[baja]

Thanks Moburkes,

So to my reading of the DOJ.. Whatever I have in and vested in the plan is my mine. Shouldn't then a change to the plan not be at the detriment of my vested money?

ERISA’s fiduciary standards, discussed above, mean that fiduciaries must establish a prudent process for selecting investment alternatives and service providers to the plan; ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided; select investment alternatives that are prudent and adequately diversified; and monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices.

Thanks

 

[moburkes]

Apparently, there are going to be fees for changing, regardless of who they change to. You cannot get around that, period. Now, if the fees are ridiculous, then an accouting needs to be provided, but if the fees are reasonable, regardless of who they change to, there is nothing you can do.