401k Forfeiture
I understand the concept of forfeiting unvested employer contributions.
I further understand that employers often wait 5 years before clawing back those amounts, in case the employee is rehired and wishes to pick up vesting.
However, my wife just had $4k forfeited from a 401k account, without notice, and 20 years after she left the company.
Clearly, the employer isn’t very competent or nice but… is this legal and do we have grounds to challenge it.
Permalink Submitted by Alan - IRA critic on Sat, 2017-03-04 01:36
Sounds odd. Did she get a letter of explanation how this was calculated, when it was effective, and why it was forfeited. Almost sounds like a plan audit was failed and they had to look back several years.
Permalink Submitted by Mike Smith on Sat, 2017-03-04 02:41
Nope, she saw the balance drop on her account with Fidelity; the detail just showed a forfeiture of $4330 on March 1, 2017. That’s well more than the original $3100 employer contributions which were 50% vested.So they helped themselves to $4330 based on their $1550 outlay.We’ve had no communication or explanation, although we shall be demanding one. However, it looks like they have computed the $4330 sum assuming their clawback should enjoy the same investment gains as the account as a whole. BTW, she left that company about 17.5 years ago (not 20).Clearly they want to benefit from my wife’s excellent management skills and we think they should be paying us for that terrific service. A flat fee of $250 per year sounds about right :-)I too wondered whether it was precipitated by an audit. But then I read that the IRS had recently relaxed the rules on how forfeited money can be used and wondered if they just saw an opportunity to grab everything they could?We shall, of course, be demanding an explanation. Any suggestions on how to handle our dialog with them would be greatly appreciated. Given the modest sum and a probably low chance of success, I can’t imagine hiring an attorney or other professional makes any sense. But I still want to poke the bear 🙂
Permalink Submitted by William Tuttle on Sat, 2017-03-04 04:24
You recognise that the employer contributions were only 50% vested. She was never really entitled to the $1550 unvested employer contributions and all associated earnings. Maybe they are massively incompetent for taking this long but weren’t they simply recovering their money and not taking anything that was rightfully hers.
Permalink Submitted by Mike Smith on Sat, 2017-03-04 05:09
We will maybe try the SOL argument. We live in CA and that’s where the employment took place. There appears to be a very strong SOL on overpayment of wages and a zero chance of an employers recovering the overpayment PLUS accrued interest and gains. Surely an overpaid employer match is highly analogous to overpaid wages? There’s a SOL on other types of transactions too. A forfeiture of $1550 does seem to have some reasonable basis but I question the validity of their claim on the accrued gains especially since my wife was managing the account a whole lot more effectively than they were!