Something smells fishy...

January 23, 2007 10:52 AM

I'm not quite what sure what do about a financial situation, and I'd appreciate some opinions from the hive. I'll try my best to provide additional info if necessary. Also, I would loved to have asked this question anonymously, but I can't find the 'ask an anonymous question' link anymore?? Anyway... a former employer put contributions in my 401(k)...

Here's the basics,

1. I no longer work for the company.

2. Former company placed a not-tiny amount of employer contributions in my 401(k) account after I had already left the company (as part of their yearly contribution schedule).

3. I was not yet 'vested' with the company when I left, so I had no right to the contribution.

4. I called the company 9 months ago to tell them that the money was erroneously placed in my account. (They said thanks!).

5. Current Day - the money is still in my account, and has earned a tidy profit. Employees choose from a range of funds to make up their retirement plan - for once I apparantly chose wisely.

6. I've asked them (again) to remove the contribution from my account. They said - on the phone - that they left the money there in case I decided to come back to the company. How nice of them (I actually said, "Oh, thanks!"). I technically closed the account when I rolled my personal payroll investments into a 401 with my new employer.

I know the money isn't mine, and I don't even want the profit as it was never my money. BUT - is it right for the employer to make the profit off of my investment choices? Aren't they really just saying, "Here, we want you to hold on to this chunk of our money in your name so that we don't pay taxes on it, and when we've made a profit on it we'll take it back."?

I realize that I should also be asking myself if I'd feel differently if the investments had lost value instead of gaining so much...

I guess my questions are, without me going to a lawyer - does all this sound legal? Should I call 'somebody' like the IRS or something? Should I just let it go??

posted by matty to law & government (13 comments total)

Are you 100% sure it isn't yours? There can be multiple types of employer contributions, and they can have different vesting schedules. There could be a stated match, a discretionary match, a stated profit sharing contribution, and a discretionary profit sharing contribution, all in the same plan.

Ask for an SPD (Summary Plan Description) and try to determine what type of contribution it really was. If it's legitmately yours, roll it over because your former employer is clueless and not helpful.
posted by peep at 11:02 AM on January 23, 2007

peep... It was a profit sharing contribution, which I was not entitled to because I was not yet 'vested' with the company. I am 100% sure it is not my money, but thank you for pointing out the different variables.
posted by matty at 11:08 AM on January 23, 2007

You should contact your former employer in writing about the issue. Keep a copy of your letter and request a definitive reply in writing: what is the disputed amount, when they will be willing to accept it, how they are going to accept it, what kind of documentation they are going to provide that they received it, what the tax consequences are to you and what documentation they will be providing to the IRS.

You've already complicated the situation greatly by closing your initial 401 and rolling the money into another one. It may well be that there's no one at your old company who knows how to handle the situation now. You should probably offer to leave them the 'out' of simply letting you keep the money; they may decide it's preferable to dealing with the hassle. But you must get confirmation of this in writing.

Do not handle this kind of business over the phone or in person. Get it in writing.
posted by ikkyu2 at 11:27 AM on January 23, 2007

Thanks ikkyu2. I should clarify #6 above... I technically closed the account and rolled all my personal contributions out BEFORE the former employer made this contribution in question. That contribution is still sitting there, untouched by me, along with any profit it's made.
posted by matty at 11:36 AM on January 23, 2007

I agree you should get it in writing, and when letting them know about it (in writing), I would not even mention anything about the profits. I would only offer to give them back their contribution. Whatever they deposited into your account originally ought to be what you offer to give back.

If they start talking about the investment profits, then you can start looking at fighting with them, but I think they may never ask if you don't bring it up or mention it. Honestly, it'll probably just mess up somebody's books, somewhere, if the amount they get back from you is greater than the amount they deposited. It certainly doesn't seem like something they would fight over.

I don't see any reason for you to mention it, and I don't think you really have any ethical or moral responsibility to do so. (IANAL so I can't comment on your legal responsibilities, but my gut reaction is you don't have any there, either, but if it's a significant sum of money, maybe you should consult a professional.)
posted by Kadin2048 at 11:39 AM on January 23, 2007

Most of the vesting arrangements I have ever seen exclude YOUR contributions and ALL EARNINGS ON ALL CONTRIBUTIONS, with vesting only applying to the employer contributions.

You seem to be a lucky recipient of good fortune. I do not think any tax event has occurred to them relative to the 'profits' showing on your balance. There is no benefit to them one way or the other.

It could be, because of a mistake, that they are at a loss of how to deal with it. Somehow, they've got to remove money from an account from which they have no withdrawal rights. Their plan administrator may not let them do that.

I'd re-review my 401K documents, and if possible, consider moving out the 'earnings' portion of the contribution to your rollover IRA, leaving them with their original contribution. If they haven't in a year or two, move the rest.

"We thought you'd come back" sounds just a little insane. I've never heard of such a thing, but I suppose it could happen. Is this a very tiny, mom and pop company or something more substantial?
posted by FauxScot at 11:54 AM on January 23, 2007

It is, quite literally, a mom and pop.
posted by matty at 12:17 PM on January 23, 2007

errr... but not MY mom and pop!
posted by matty at 12:29 PM on January 23, 2007

Also, I would loved to have asked this question anonymously, but I can't find the 'ask an anonymous question' link anymore??

You didn't look close enough, dude - its still there, right on the page that you're directed to when you click "new question." Its hidden in the middle of a sentence, maybe that's why you missed it, but it says "use this form here."
posted by allkindsoftime at 12:36 PM on January 23, 2007

heh, I sure didn't see it (and I definately won't again for 2 more weeks!!). Thanks though.
posted by matty at 12:52 PM on January 23, 2007

OK, well that explains a LOT more. Super small company, probably DOES think you'll come back, also probably doesn't know what to do about the intentional/unintentional 'mistake'.

I'd help them out to the degree I could, since it sounds like you didn't end on bad terms.

It's great for your personal karma/self-image and the general benefit of humanity to not take advantage of people. Were it I in similar circumstances, I'd assist them in getting their money back and stay friends. They are obviously not evil capitalist creeps or a huge, impersonal corporation.

Seems you are leaning that way anyway, for which I applaud you.
posted by FauxScot at 5:19 PM on January 23, 2007

Are you confident that you're not partially vested? Sometimes, you can vest at a certain rate (like 25% per year, after the first year, fully vested after 4 years).
posted by j at 9:40 PM on January 23, 2007

Matty: I'd suggest immediately switching the entire balance of the 401(k) into the lowest-risk investment you can find. If it were to lose overall net value because of your elections and suddenly the company wanted it back, I can envision scenarios where you'd be liable for the lost value.
posted by ikkyu2 at 3:17 PM on January 24, 2007