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My job uses a Professional Employer Organization to handle payroll and benefits. This is a coemployment relationship, not temp/staffing, nor subcontract. The PEO is the issuer of my W-2 and listed as the Plan Sponsor of my 401k.

Late last year, there was a switch to a different PEO. The new PEO has similar but different health insurance and 401(k). I'm enrolled in the new benefits package and have elective deferrals into the new PEO's 401(k).

Before the event, employees were told we would have the opportunity to transfer 401k balances out to IRAs (or in my case, a solo 401k), when the time came, we were told that this was a plan merger, and due to no lapse in employment or plan eligibility, there's no qualifying event enabling withdrawal. So we are forced to allow existing balances to transfer to the new custodian. The blackout period for this hasn't started yet.

There appear to be a few flaws in the explanation we've been given, which makes me think it's a power play by the new custodian to get more assets under management, and profit from percentage-based recordkeeping fees (0.32% which applies to both core funds and SDBA -- I want to escape these by transferring out). In particular:

  • All the W-2 forms (with "Retirement Plan" checked and contributions shown with codes D and AA) were issued with the EIN belonging solely to the old PEO.
  • The Summary Plan Description for the old 401k lists the old PEO as "Plan Sponsor", not my workplace employer
  • The Summary Plan Description for the old 401k is named after the old PEO -- it's their plan, not a scenario where my workplace employer had their own plan and the PEO was custodian/recordkeeper.
  • I received COBRA continuation offers from the old PEO concerning the group health plan which I had. These offers specifically state my "group health coverage ended on (date) due to the following qualifying event: TERMINATION OF EMPLOYMENT"
  • This is not a merger between PEOs -- the old 401k plan continues to exist and be used by client companies still with the old PEO.

Another page included with the COBRA information states

As a result of the Client Service Agreement between (workplace employer) and (old PEO), effective (date), your employment relationship with (old PEO) is terminated. All wages or other compensation earned by you after that date will be paid directly to you by (workplace employer).

It also mentions

If you currently have a 401k loan being administered by (old 401k custodian, which is a subsidiary of old PEO) please contact the (old 401k custodian) call center at (phone number) for any options you may have to prevent the default of such loan.

I don't have a 401k loan, but to me, this supports the interpretation that my 401k has also undergone a "termination of employment" qualifying event, making withdrawal via direct transfer possible.

I tried to read the ERISA statute to see if the named Plan Sponsor was important to whether this event constituted a change in employment vs a 401k merger. But as far as I can tell, ERISA doesn't ever define "covered employment", so I can't figure out whether breaking the relationship with the Plan Sponsor ends covered employment.

Can an event be a "termination of employment qualifying event" for health plan purposes without also being a "termination of employment qualifying event" for 401k purposes? I'm aware that health care has many other qualifying events (marriage, birth of a child, spousal coverage, etc) that don't affect 401k, but "termination of employment" does affect both.

Can I compel release of my balance by virtue of the paperwork I received? Or can they claim that the paperwork is just a form letter, doesn't apply to my situation, and that's why I'm instructed to call? Unfortunately, phone agents aren't working in my interest and may not tell me all my options.

migrated from money.stackexchange.com Feb 7 at 22:18

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  • Have your 401k assets already made it to the new custodian? This is a great question because PEOs are interesting (for lack of a better word), and I'm not certain, but I am very highly confident that no part of COBRA applies to 401(k). – quid Feb 7 at 22:02
  • @quid: No, the blackout period hasn't begun. (And the wording of the blackout announcement notice is another red flag -- "This Notice is to inform you that <worksite employer> has elected to merge their portion of assets held in <401k plan at old PEO> Plan into the <401k plan at new PEO> Plan". Excuse me, I'm 100% vested and these assets are mine, not the employer's! Not for any value of employer -- old PEO, new PEO, or worksite employer.) – Ben Voigt Feb 7 at 22:33

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