Company is being Acquired Please Help with 401k Advice

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zaphoid
Posts: 2
Joined: Mon Feb 27, 2017 7:45 pm

Company is being Acquired Please Help with 401k Advice

Post by zaphoid » Thu Dec 07, 2017 10:26 pm

Hi All,
The Medical Software Company I have worked at for 21 years is being sold, and acquired by a much larger corporation. We will all mostly keep our jobs, but has been some turmoil and drama happening on a daily basis since the announcement. We have all been in a mild state of shock and panic over the last three weeks or so. The deal is supposed to be finished by the end of February 2018. It's been a very successful family owned business that has grown to about 300 employees. The brothers are all getting older, and retiring, and felt this was the best course of action. The new company will give them the capital they need for further expansion and such. We always thought this company would just continue on indefinitely, it's so easy to be comfortable and let your guard down.

The current company has been really good to their employees. Our 401k's have had great funds ( they are Voya with Vanguard funds ). They have done a 7% of pay and 100% match since I started. In the past 10 years or so they have also added a profit share of an additional 3% of pay every year. It's been great, and foolishly I've only contributed the 7% for years, until I got a better handle on my finances as of late, and upped my contribution. I still have a respectable balance in my 401k of $330k at this point ( I am 100% invested in Vanguard Target Retirement 2035, oh and also, I am 44 years old for the curious).

The new companies plan is not so good. They have a 6% match at 50% ( so essentially just a 3% match ) and capped at $2500. The 401k is a Roth 401k. I have no idea what funds they use at this point. Additionally they hold their match until the end of the year, whereas my current company has matched continuously, and we've been able to take advantage of the gains. Losing out on a years worth of gains at $2500 does not sound good to me. It's not a good situation at all in my opinion, and most of the employees are not happy about it. But our hands are tied.

With that information, what in your opinions should I do? Should I roll out of my current plan before February to a Traditional IRA with Vanguard and keep control of my money? I would then start over with the new company only up to their match, while continually funding my traditional and Roth. (I failed to mention that I have a Roth IRA with Vanguard that I started this year). Or should I just let it ride and they can pull the 401k over. I am not really keen on moving my 401k to a traditional IRA, as there are many advantages to a 401k. But so far I'm not feeling great about this acquisition. It's a crappy situation either way. I thank you in advance for any advice or thoughts you can give.

workerbeeengineer
Posts: 74
Joined: Thu Jun 02, 2016 12:22 am

Re: Company is being Acquired Please Help with 401k Advice

Post by workerbeeengineer » Thu Dec 07, 2017 10:44 pm

Zaphold, exactly what advantages of a 401k versus rollover IRA are you referring to? You have an opportunity to "cash out" from the current benevolent employer with apparently no downside imo.

zaphoid
Posts: 2
Joined: Mon Feb 27, 2017 7:45 pm

Re: Company is being Acquired Please Help with 401k Advice

Post by zaphoid » Thu Dec 07, 2017 10:51 pm

workerbeeengineer wrote:
Thu Dec 07, 2017 10:44 pm
Zaphold, exactly what advantages of a 401k versus rollover IRA are you referring to? You have an opportunity to "cash out" from the current benevolent employer with apparently no downside imo.
Perhaps I stated that incorrectly in my last paragraph. I was mostly referring to the general advantage of a 401k over a traditional IRA. The tax advantages of the 401k's larger contribution limit of 18k as opposed to 5.5k, and of course the match.

workerbeeengineer
Posts: 74
Joined: Thu Jun 02, 2016 12:22 am

Re: Company is being Acquired Please Help with 401k Advice

Post by workerbeeengineer » Thu Dec 07, 2017 11:12 pm

Agree! But with respect to the decision on what to do with your 401k balance from your soon to be former employer, I really can't identify any advantage in rolling it into the new 401k. As you indicated, the investment choices to be offered are unknown at this point. There is a good chance the new fund choices will all have high expense ratios. You certainly already know that a Rollover IRA to Vanguard enables you to select index funds with very low expense ratios. Since you already have the Roth IRA with Vanguard it seems to be the logical move.

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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Company is being Acquired Please Help with 401k Advice

Post by Watty » Thu Dec 07, 2017 11:34 pm

zaphoid wrote:
Thu Dec 07, 2017 10:26 pm
I have no idea what funds they use at this point.
It sounds like you have not gotten the official word of what the 401k will be like after the merger. If that is the case then I would try to not worry about that too much until you get the official details of what it will be like. Most likely the HR people are just starting to figure that out now themselves if the deal will not be done until February.

Moving a 401k from one administrator to another is a significant undertaking since you could be dealing with tens of millions of dollars if there are a lot of long term employees. That will take months of planning and intensive auditing. Even getting you moved over to the new company's payroll system will take time.

Changing a plan in mid year brings up all sorts of complications so there is a reasonable chance that any change to the 401k will not happen until the end of 2018.

TG2
Posts: 192
Joined: Sat Nov 25, 2017 6:50 pm

Re: Company is being Acquired Please Help with 401k Advice

Post by TG2 » Fri Dec 08, 2017 12:07 am

First, depending on how the sale of the company is structured the acquirer may have the option of forcing the current company to terminate the existing plan rather than merge it into theirs. Have you been told that you will have the option to roll your current plan into the new employer's plan?

Second, you will certainly have better investment options if you roll it into an IRA instead. There are a couple of things to be concerned about. My recollection is that employer 401k plans are better protected from creditors than are IRA's. Also, money in a 401k can be accessed penalty-free if you leave employment after you reach 55. Money in an IRA is locked in until 59.5. Those are probably minor concerns for most people.

If the new company ONLY offers a Roth 401k I would keep them separate, do the rollover to an IRA, and start over. If it were my money I would do the rollover IRA either way, actually. And your concern over contribution limits is misplaced. You will be able to contribute the same amount to a new 401k as you could to your old one.

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Watty
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Re: Company is being Acquired Please Help with 401k Advice

Post by Watty » Fri Dec 08, 2017 12:12 am

TG2 wrote:
Fri Dec 08, 2017 12:07 am
If the new company ONLY offers a Roth 401k...
That is almost certainly not the case since even when there is a Roth 401k any employer match still goes into a traditional 401k since that money has never been taxed.

TG2
Posts: 192
Joined: Sat Nov 25, 2017 6:50 pm

Re: Company is being Acquired Please Help with 401k Advice

Post by TG2 » Fri Dec 08, 2017 1:08 am

Watty wrote:
Fri Dec 08, 2017 12:12 am
TG2 wrote:
Fri Dec 08, 2017 12:07 am
If the new company ONLY offers a Roth 401k...
That is almost certainly not the case since even when there is a Roth 401k any employer match still goes into a traditional 401k since that money has never been taxed.
Agreed, but the OP posted, " The 401k is a Roth 401k." I would assume that he meant they have a Roth option, but....

Goal33
Posts: 576
Joined: Sun Apr 12, 2015 12:30 pm

Re: Company is being Acquired Please Help with 401k Advice

Post by Goal33 » Fri Dec 08, 2017 1:14 am

I think you are missing information and you should probably sit tight until you learn more about your situation...
A man with one watch always knows what time it is; a man with two watches is never sure.

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