401k Tag

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Top Five Questions You Should Ask About Your 401k Plan (updated 2021)

The more information you know about your plan the better off you will be because your retirement plan account is very likely going to be one of your largest assets over the course of your life if not the largest. If you are new to saving for retirement or new to a plan this is a good place to start understanding your 401k. The plan’s summary plan description (SPD) should address these issues Does the plan offer employer match and if so how is it calculated? Many plans offer some sort of matching contribution from the employer when you make contributions from your...

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Why is there a 10% early withdrawal penalty to cash out a 401k?

Before becoming an employment attorney I worked for one of the largest (maybe the largest) provider of 401k services. We provided various investment, customer service and recordkeeping services for 401k plans. Most people who call for information about their 401k plans will end up talking to my former employer or one of their competitors. Most 401k plan administration responsibilities outsourced to financial institutions that provide the infrastructure and staffing with expertise in plan issues. A common issue for 401k participants is: why is there a 10% early withdrawal penalty to cash out my 401k? A large number of calls about 401k...

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Can you sue your financial adviser under the DTPA in Texas?

Disputes with financial advisers are common, particularly in periods of economic decline and volatility. When things are good most people do not carefully watch what their financial adviser or broker is doing. When things turn south people look to their financial advisers to help them out and problems are uncovered. Sometimes the complaints about financial advisers are just people looking for a place to blame losses. Sometimes the complaints are just that the financial adviser did not personally manage a client's accounts when the adviser was not responsible for personally managing the accounts and the client suffered market losses. However, sometimes...

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Vanguard funds targeted in new 401k excessive fee litigation

401k excessive fee litigation has been an active area of ERISA litigation for over a decade with 401k participants arguing the plan administrator--along with various other plan fiduciaries--breached the duty to prudently manage the investment options of the plan. Most of these cases argue the plan administrator failed to select investments with reasonable fees, particularly in light of the buying power of the 401k plan to obtain lower fee share classes or to obtain access to lower fee funds in the market. Although this issue has been litigated for over a decade we still do not have a clear rule...

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Unanimous SCOTUS decision in Tibble holds ERISA fiduciaries must continuously monitor 401k investment choices

A flurry of 401k litigation arose in the 2000s over the manner in which 401k plan sponsors select the investment choices and how those choices relate to the fees charged to the plan for various plan services and investments. 401k plan sponsors have fiduciary obligations to operate the plan prudently. 401k litigation asserts breaches of these fiduciary duties through relationships between the plan sponsor and outside service vendors. Most assert conflicts of interests or lack of due diligence in fee arrangements to pay outside service vendors. For example, selecting investments with high rates of revenue sharing to shift the cost of services from the...

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Dissecting fact and fiction from a recent report on retirement savings

As somebody who spent a decade working in employee benefits and now practices employee benefits law, I have an understanding of the employee benefits industry. When I saw WFAA in Dallas covering a report about retirement savings I couldn't pass up the opportunity to fact-check. Predictably, the piece mixes a little truth with a lot of scare tactics and misdirection. (You can read the WFAA story here.) Let's get right into the thick of it. The first thing we should note is who conducted the study involved in this news story. The study comes from the Employee Benefits Research Institute (EBRI). Although...

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Should I invest in company stock in my 401k?

In an article I authored back in 2010 published in the National Law Review I discussed the risks involved for both companies and employees in allowing employees to invest in company stock within their 401k plans. The company stock becomes available through an ESOP (Employee Stock Ownership Plan) within the 401k known as a KSOP. Companies can obtain tax benefits through the ESOP as well as buoy its stock. Although ESOPs are numerically most often in small, private companies, it is the larger companies that get press when the ESOP becomes a problem. When it comes to finances, everybody’s investment goals, strategies and...

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Should I contribute Roth, after-tax, or pre-tax in my 401k?

It depends. Each option gives you a different benefit and the respective benefits will have a maximum positive impact depending on your current financial situation, retirement needs/goals and your expectations for future tax rates. Pretax 401k contributions Pre-tax contributions provide an immediate tax benefit because you do not pay taxes on income contributed to your 401k. You also get the benefit of tax-free growth in your 401k. The downside is that all of the pre-tax money in your 401k is taxable upon distribution. 401k Roth contributions Roth contributions, on the other hand, do not provide an immediate tax benefit. You pay taxes on your...

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Can my employer change the 401k plan or make an exception for me?

Generally, no. The federal regulations that govern 401k plans require that 401k plans do not discriminate against employees. Plans must have uniform rules and the rules must apply in a uniform manner. For example, if your plan permits hardship withdrawals it must establish specific rules for those distributions. Plans can establish some variances in rules across different business units, but once the rules become effective they cannot change without amending the entire plan. In order to make an exception or change the rules, the plan has change for everybody. Even when a 401k plan desires to make a change, changes often require amending...

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Should I be concerned about 401k fees?

401k fees have come into focus as one of many ways the financial services industry leeches money from the investors. That focus turned into litigation by participants against their plans (and plan service providers). Eventually the Department of Labor instituted fee disclosure rules that require plan service providers to break down fees charged to the plan and participants. Although most of the litigation has been unsuccessful in recovering awards for participants, the fee disclosure rules did force the financial service industry to better expose the relationships between the plan, participants, investments and fees. That way the plan can assess the fees paid...

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Employment Attorney explains: When can I take a 401k loan?

401k loans allow you to borrow against your 401k account tax-free (as long as you pay it all back). The loan payments typically occur by payroll deductions. If considering a 401k loan you should carefully consider he loan terms and the ramifications. Your employer does not have to offer 401k loans and can severely limit what options are available to you. Dallas employment attorney explains the types of 401k loans There are two types of 401k loans available: general loans and home loans. General loans, by law, may only extend for the maximum of five years; but you can take out these loans...

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Retirement Plan Participant Disclosures

By now you received fee disclosure statements on your 401k, ESOP, 403(b) and profit sharing plans. These fee disclosure statements, known as 404a5 Participant Disclosures, ensure these retirement plans provide plan participants with a minimum amount of information about the fees charged by plan investments and fees paid by the plan (often from those investment fees) to companies that provide services to the plan, such as auditing, accounting and investment management. These disclosures provide participants with information necessary to adequately assess the investment options within your plan. Why these retirement plan disclosures began In the 1990s mutual fund and insurance companies realized the...

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Can I sue my Texas broker for investment losses?

It depends. Generally you cannot hold anybody else responsible for market losses on your investments. However, there are some situations where another party may be responsible for your investment losses. Some claims against brokers do not relate to market losses but to other negligent or fraudulent acts by a broker or adviser. When considering lawsuits against a broker or adviser one must consider: (1) the liability issues; (2) the value of any lawsuit or other claim; and (3) the cost to prosecute claims with a consumer attorney in Texas. Often claims against brokers have to be filed in a specific forum....

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What is the difference between a 401k plan and a deferred compensation plan?

Generally, both plan formats defer compensation because the employee has elected to defer taking cash in hand to obtain some additional benefit, such as deferring taxes on the money or investing on a tax deferred basis. Under more specific legal definitions, there is a distinction between how these different plans work. Today's post will discuss some of the key differences between these types of employer-sponsored retirement plans through the eyes of an employment law attorney. 401k plans and ERISA 401k plans are governed by the Employee Retirement Income Security Act (ERISA) along with other defined contributions plans like ESOPs. They must be available to...

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ERISA Retirement Plan Participant Disclosures

By now you received fee disclosure statements on your 401k, ESOP, 403(b) and profit sharing plans. These fee disclosure statements, known as 404a5 Participant Disclosures, ensure retirement plans provide participants with a minimum amount of information about the fees charged by plan investments and fees paid by the plan (often from those investment fees) to companies that provide services to the plan, such as auditing, accounting and investment management. These disclosures provide participants with information necessary to adequately assess the investment options within your plan. Confused about the disclosures? Talk to an employment lawyer near you. Why these 401k fee disclosures began In the...

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Benefits of staying in your 401k after you leave an employer

When employees leave employment, the common response is to want to sever ties and move on, especially if the employee left involuntarily or on bad terms. However, withdrawing or rolling over your 401k may not be the best decision in every case. There are important financial and legal considerations. Before making decisions about your 401k benefits you should consider talking to a financial adviser and lawyer near you to discuss financial and legal concerns. Financial Considerations for employees and retirees Many financial considerations can come into play in this decision. If you leave one employer to go to a next, you may...

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What is a KSOP?

KSOP is jargon used within the financial and employee benefit industries as shorthand to explain the arrangement where a 401k plan houses an ESOP of the employer’s stock as an investment option. An ESOP is an Employee Stock Ownership Plan that allows employees to purchase company stock through a retirement plan. It is an ERISA plan all on its own but also an investment option within a 401k plan along with the other common 401k investment options. A KSOP is an ESOP housed within a 401k plan. What is a KSOP retirement savings plan? KSOP structures became popular among employers as a...

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What is an Summary Plan Description?

SPD is a Summary Plan Description. It is the employee benefit plan documentation that must be provided to all participants and beneficiaries that explains the basic rules of the plan in layperson’s terms. It contains descriptions of the rules for eligibility, participation, vesting, benefit calculation, benefit availability and how to file a claim for benefits. An SPD can be an important tool to understand your 401k or other retirement plan. According to the Department of Labor: The summary plan description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee...

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401k Participants Want Employer Help Saving for Retirement. No Kidding?

An article published early this year discussed a survey by State Street Global Advisors (SSgA) proudly boasted that 74% of participants in 401k plans want to better understand how their savings will pay off in retirement. This should come as no surprise. Most workers have little or no formal or informal education in investing. Thanks to shifts in the financial services industry in the 90s most workers no longer have pensions. Pensions allowed workers to do their jobs and let their employers manage the pension fund investments. With 401k plans and other defined contribution plans, employers have shifted the investment responsibility...

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How does an ESOP work? How does it work with a 401k plan?

An ESOP is an Employee Stock Ownership Plan. It is an ERISA-governed employee benefit plan that allows the employee to purchase shares of the employer’s stock on a tax deferred-basis. (You don’t pay taxes today but you will pay taxes when you take your money out of the plan.) ESOPs were common before the rise of 401k plans in the 1980s. Today it is common for employers to offer company stock in their 401k plans. The company stock in the 401k plan is often an ESOP within the 401k in a structure sometimes called KSOP. (For more information about KSOP plans...

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