Shankar Iyer, a former senior research associate at Penn Specialty, had $24,000 in administrative services fees deducted from his 401(k). In one year.
And you thought your 401(k) fees were bad!
OK, it wasn't a normal year. It was one after the company where he had his 401(k) had filed for bankruptcy.
That filing in December 2008 locked Shankar and some of his former colleagues at the Memphis, Tenn.-based chemical company out of their workplace retirement accounts.
Their travails are recounted in Gretchen Morgenson's New York Times story When a 401(k) is Locked in the Freezer.
Apparently, the freezing of workplace retirement plans, especially those in small companies, is not unusual in bankruptcy situations.
The Internal Revenue Service says participants should receive
their share of the workplace plan's assets "as soon as administratively feasible," reports Morgenson.
But, she notes, that hasn't happened for Penn Specialty's former workers.
They can switch among various funds offered by Vanguard, which managed the plans for the now defunct company, but they can't touch their
money.
They still have to pay high administrative fees on
their accounts, which means they are being eaten away at a more rapid pace because the workers and company are no longer contributing.
And older account holders near the required minimum distribution (RMD) age of 71½ are facing big penalties if they can't get to their accounts to make the IRS mandated yearly withdrawals.
The plan trustee said he's waiting for the IRS to officially terminate Penn Specialty's retirment plan so that the former employees can get to their 401(k)s.
This looks to me to be something that's right up the alley of the National Taxpayer Advocate. That office helps taxpayers who've exhausted all regular IRS channels and are facing fiscal difficulties because that hasn't worked.
As for everyone else with a 401(k), perhaps it's time to double check your company's well being.
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