Is your employer doing the '401k float'?
Some Americans are giving their employers an interest-free loan, whether they know it or not. It's all thanks to the "float" -- the time it takes for 401k contributions to move out of your paycheck and into your retirement account. Rico Gagliano reports.
Floating cash (Kativ / iStockPhoto)
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TESS VIGELAND: Wanna give your employer an interest-free loan? How about your 401(k) plan provider? Didn't think so.
But that's what some Americans are doing, whether they know it or not. It's all thanks to the "float": the amount of time it takes for 401(k) contributions to move out of your paycheck and into your retirement account. A little float may be OK. But what are your rights if it's a lot?
Rico Gagliano dipped his toe in the deep end to find out.
RICO GAGLIANO: [KID SOUNDS, SPLASHING] So I'm sitting by my friends' pool, watching their 2-year-old daughter floating with her new inflatable water wings. . . . And as she splashes, she's endangering a few hundred bucks' worth of my recording equipment, by the way. But aside from that, it's a pretty good way to cool off here in summertime Los Angeles.
When your 401(k) money floats, though, it can be really uncool. I called a listener named Mark from Baltimore, to hear his story.
GAGLIANO: So what happened?
MARK: When I first started with the employer, they offered a 401(k) plan. Had a company match of 5 percent. As time went on, the match dropped off -- no longer offered. And pretty soon we'd see a 401(k) contribution taken out of our paycheck, but not appear on the 401(k) statements.
GAGLIANO: The money would be deducted from your paycheck and it wouldn't appear in your 401(k) until later.
MARK: Correct. At times it was months, sometimes it was many months.
GAGLIANO: Do you know why this was happening?
MARK: Times have been tight. There were times we didn't have money for paper towels.
GAGLIANO: No money for paper towels. Oh, man.
MARK: I talked to the chief financial officer and he says, "Well, they had other bills to pay.
GAGLIANO: So they were holding on to your 401(k) money to pay the bills, basically.
MARK: Operating expenses, right.
Not exactly happy poolside listening, is it? Mark's contributions did eventually end up in his account, but the delay was still illegal. And it's not an isolated case: Last year the Department of Labor says it e "corrected" over 1,100 violations of federal rules governing 401(k) floats. The rules are part of a law called ERISA. Which stands for . . .
JOHN HOTZ: The Employee Retirement Income and Security Act." Which, uh, many practitioners will say actually stands for "Every Rule Is Somewhat Ambiguous."
That's John Hotz, deputy director of the non-profit Pension Rights Center. I asked him to try and explain some of those ambiguous rules. Like, for instance, how fast must employers get your 401(k) cash into your account?
HOTZ: As soon as is administratively feasible. In today's day, this is really just an automated function. It can happen within 24 to 48 hours in most situations.
Problems usually crop up with small businesses, which don't have automated 401(k)s and often do have an accounting staff of just one person. By law, even they have to deposit an employee contribution within 15 days after the month it's deducted from a paycheck. But Hotz says many small businesses simply don't know that. In fact, a few don't seem to know much of anything about 401(k)s.
HOTZ: A call came in from an employee of a small concern that was family owned and operated. And it ended up that the plan administrator had really no idea what responsibilities were involved in administering a 401(k) plan. So I ended up buying a small desktop reference book for this person, and put some Post-It notes on certain pages.
But what if the problem isn't your employer? Tim Wood is with Deschutes Investment Advisors in Portland, Oregon.
TIM WOOD: There are two sides of the float: One is the employer side and the other I guess I would call the "investment" side.
That's when the 401(k) provider sits on your money a while, even after they get it from your employer.
WOOD: Why this is a problem is that every day that money's floating, the investment provider is actually earning income on it, because it's being invested in short-term accounts. And that money is not being credited to the participants. So, in effect, it really is a fee.
A short provider float may be unavoidable. But if it becomes too long? It's your employer's legal responsibility to get on the provider's case about it. So if you've told your boss about a long float and nothing's been done, it might be time to call in the Department of Labor. Of course, whistleblowers in small companies risk a lot. That's why our listener Mark didn't blow a whistle.
MARK: I didn't like it, but what am I gonna do? Call the federal authorities? Jeopardize my company? Jeopardize my job?
Actually, maybe. The Pension Rights Center's John Hotz says it can work out for the best. But employees who take the plunge . . . [SPLASH!] . . . Should be ready to sink or swim.
In Los Angeles, I'm Rico Gagliano for Marketplace Money.
Comments
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09/27/2008
Keywords are: 401k non-payment, 401k payments, 401k problems - because this site was invaluable to me. Update? Still waiting for an amount equal to over the last 3 pay periods. One co-worker is "wimping" out, we think. Another co-worker is withdrawing from the 401k plan. The latter, along with me, plan to have a discussion with the "fiduciary" about the penalties for non-payment of funds into our 401k's in a timely manner. Please, if anyone has comments on MY commentary, contact me at MistOnTheWind@aol.com. I feel it necessary to keep anyone who's interested updated on our progress.
09/17/2008
Yes, kiddies, it's me again. First I'd like to thank Marketplace for their existence because it was through them, after diligent searching on the internet, that I found information about ERISA and EBSA. We've been conferring with someone at EBSA while being very quiet about this at work. Friday is payday. He's still behind although he's sent in money twice since I asked him, very nicely, about this problem a week ago Monday. We've looked at our histories of ingoing monies. He's been doing this for years. We're told he owes us interest money. We still have questions. Do we need an attorney? How do we get an audit? How do we protect our jobs, or is that impossible? Thanks again, Marketplace!!
09/14/2008
We work for a small company. It came to our attention that no contributions had been made to our 401k's for 2 months even though deductions are made twice a month. We began investigating. The deeper we dig the worse it gets. Yes, we fear losing our jobs. Most of all we feel betrayed and abused. We plan to move forward, cautiously, to investigate our options. A query to the person who does payroll resulted in a portion of the overdue amounts being sent to the 401k company, but we're each still owed over $200.00. Will we lose our jobs. Probably. We're trying to quietly get proof before an attorney before that happens as our employers should then be liable for lost wages should they choose to fire us. Do we want to keep our jobs? Yes. Are we willing to overlook this type of theft? Absolutely not! Stay tuned for the next installment, kids, and in the meantime? Keep a very, very close eye on your 401k activity. Your bosses may be thieves!
From decatur, AL, 09/08/2008
my employer had a simple ira account set up for bennefit, he tends to hold the money that is with drawn from my paycheck for periods of time (six Months)before depositing it with the brokerage company, i believe this is illegal, who should i contact regarding this matter, and are the any legal ramifications
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