401k/Roth undisclosed "Forfeiture Fee" halves retirement rollover. Help!

March 11, 2013 8:50 AM

I recently rolled over my old 401K and Roth accounts through an old employer and held by ADP. Throughout the process, I was told the only fee would be the $50 "account transfer fee". But when the checks arrived half of my money was missing!

A year ago I left a crappy retail job for a much better job at a software company. While working at the retail job, I made significant contributions to my employer sponsored Roth account controlled by ADP Investment Services.

Over the last year, I watched as my account not only took a significant loss in terms of its investments, but also was chewed up by fees. I made several calls to ADP's India call center, whose nice employees were unable to answer most of my questions regarding a Roll Over, but did help me get the ball rolling on paperwork. They informed me there would be a $50 account closure fee. Fine, I thought, better than losing double that amount with another bad year of investing and fees.

Fast forward a few weeks later, and I receive my disbursement checks totaling half of my investments. When looking through the account statements I see that nearly half of my Roth was taken as a "Forfeiture Debit". I was incredulous that I would lose HALF the value of my retirement account! The folks in India could only be sympathetic to my first world problem but could neither fully explain the fee, or explain why I was not notified that half the value of my account would be taken.

I'm almost 30 and am trying to play catch up with my retirement accounts after being dealt a pretty bad hand with the economy. Losing 50% of the value of my Roth is really upsetting, especially as I contributed generously at a low-paying job that offered next to no matching (.5% of 1%).

As someone who slogged through some pretty awful customer service jobs, I have kept my cool throughout this frustrating ordeal. But I am not getting the help I need to feel this issue is resolved. GetHuman.com's numbers are all to ADP's Cobra Assistance Branch and I am at a loss of who to contact...If I had known my account would be halved in value by trying to roll over I would have suffered the continued losses and waited until I could have avoided this surprise fee.

Any help or advice would be most welcome!

Thank you.

posted by iheijoushin to work & money (8 answers total)

? Was that unvested employer contribution in the 401k?

This sounds weird if it isn't that.

Did you have them disburse them or roll them over?
posted by JPD at 9:04 AM on March 11

A few thoughts:

• Is it possible that half of your account is due to employer contributions that were never vested to you? This could happen if your employer had a generous contribution policy with a vesting period and you didn't contribute yourself.
• Is it possible that your 401(k) was primarily Traditional 401(k) money and not Roth 401(k) money? If that's the case, then your withdrawal (note, if you received a check, it's a withdrawal - you probably wanted a rollover, which is a direct institution-to-institution transfer and you never receive a check) will be taxed at your marginal tax rate plus 10%, which could very easily end up at 50%.
• This is probably obvious to you, but don't cash that check; it'll be much easier to unroll this transaction if you don't move forward with it.

posted by saeculorum at 9:05 AM on March 11

Another thought - you can withdraw contributions from a Roth 401(k) at any time (you already paid taxes on them). However, until you are 59.5 years old and your Roth 401(k) is five years old, your investment earnings are taxable at your marginal tax rate plus 10%. So this may be contributing to your problem (pun intended).

(again, it sounds like you did a withdrawal rather than a rollover)
posted by saeculorum at 9:11 AM on March 11

Who is the check made out to? If the check is made out to you then you did a withdrawal. Do not cash that check and call ADP back and start the process on reversing it (it can be done). If the check is made out to your new 401(k) administrator* then you did a rollover and either this is unvested amount as said above or someone made a serious mistake, either way call and ask. ADP should be able to tell you exactly what every dollar is for.

*It will probably have your name as well, should say something like "Payable to: Fidelity Investiments FBO: iheijoushin" (For the Benefit Of - in case you are wondering what FBO means)
posted by magnetsphere at 9:21 AM on March 11 [6 favorites]

It's true that an early distribution from a 401(k) will be taxable as ordinary income plus a 10% penalty, but the mandatory withholding that the plan administrator is required to subtract is only 20%. So that does not account for half the balance being gone.

It sounds to me like non-vested employer contributions, as others noted. Are you absolutely sure this employer did not make contributions on your behalf? It's possible that they had that crappy match but also made separate profit sharing contributions not related to the match. Dig through your file cabinets to find any benefits information, any agreement you can find from the plan administrator, and every statement you can find.
posted by payoto at 9:55 AM on March 11

In this context, I've never known "Forfeiture Debit" to mean anything other than the loss of unvested funds related to a company match. If this was a tax payment, the line item would say so.

iheijoushin, when you were contributing to your 401K, your company was matching your investments at a given rate (typically either a percentage of your salary, or a percentage match on your investment amount). A company match is, as all the investment gurus say, free money, but it usually has terms attached to it. Typically, the amount is only yours if you continue working at the company past a given date (typically expressed as years from your hire date). 3-4 years seems to be the most common period, but some companies go as long as six years.

If you leave the company before that date, the money the company funded into your 401K reverts back to them, either completely (100% loss) or a percentage based on how long you were employed (for example, you might get to keep 25% if you were there a year, 50% if you were there two years, 75% for three years or service, and 100% after four years).

By leaving the company before your vesting date, you "forfeited" the matching funds, which then had to be "debited" from your account so you only received your money.

If you have questions about this, ADP probably isn't the right person to ask. You should call the HR or Benefits office of your previous employer. Don't feel uncomfortable about this; they handle these things all the time, including for previous employees.
posted by NotMyselfRightNow at 10:08 AM on March 11 [1 favorite]

The OP said that there was a very minimal employer match. I think that it is rare to see significant employer contributions to a Roth vehicle.

According to OP's profile, he is in luck. One of the nation's top retirement benefits lawyers practices right in his town. See this page.
posted by yclipse at 2:16 PM on March 11

Call the department of labor consumer assistance line. They may be able to help. http://www.dol.gov/ebsa/contactEBSA/consumerassistance.html. Also ask for a copy of your summary plan description, which contains all plan terms and should explain fees and forfeitures.
posted by bananafish at 6:30 PM on March 11