Is This Action by Megacorp Legal?

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vested1
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Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 9:25 am

I was discussing rebalancing and asset allocation with a close friend of mine yesterday at his request. He is retired and holds a tax deferred IRA and a rolled over 401k at the same large investment firm. He manages his own accounts. The Megacorp he retired from last year decided on their own to change the offerings in the 401k for all participants, actively employed or retired. The change occurred on January 1st 2018. Without notice or permission, the Megacorp shifted all the money that was in the previous positions to others that had just been added at the same time the old ones were eliminated.

It would be one thing if the funds involved were apples to apples, but they weren't. My friend's equity allocation jumped to 12% above his desired AA as a result, just in time for the equity market correction. One of the holdings he was placed in was a 2015 retirement target fund (even though he retired in January of 2017) with a higher ER than he was comfortable with, and a name for the fund that was preceded with the name of the Megacorp. All of the target funds offered were designated as the Megacorp funds. Megacorp is not an investment firm. It took some digging to even find out the ER and makeup of the new target fund, which had more international equity than he was comfortable with. He was also placed in a separate international equity fund, even though the target fund already had a healthy chunk of that inside.

The new offerings outnumbered the old ones by a few multiples. He was also placed in a total U.S. stock fund, along with additional and separate large and small/midcap equity funds. His only bond exposure in the new holdings were inside the target fund, and resulted in the drastic change and a more risky overall asset allocation.

He checked with all of his other friends in the Megacorp who pay varying degrees of attention to their 401k's and found them all surprised and shocked that this had happened. None had received any notice of the impending changes or a request by Megacorp for participants to elect new funds. The ER's of all of the new funds, other than the target funds, are lower than the previous offerings, and mostly index funds, but it is nearly impossible to find out the fees involved in the 401k and where those fees are going.

My friend will be liquidating the 401k now and moving all proceeds into his self managed IRA with no tax consequences. His paper losses with the recent correction were increased due to the unfortunate timing of the jump in equity allocation. I urged him to keep detailed records due to the fact that I believe he and all of the other 300,000 current and former employees have a case against Megacorp for manipulating their life savings without notice or permission.

I was wondering if any of our resident lawyers here, or anyone else really, had an opinion as to if this action taken by Megacorp was legal. I know if it was me, I would have been on the phone to a lawyer about a month ago, even before the correction made a larger impact on the portfolio than necessary.

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DaftInvestor
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Re: Is This Action by Megacorp Legal?

Post by DaftInvestor » Wed Feb 14, 2018 9:33 am

Is it possible your friend got a notice but didn't open it?
I've had several companies change investment options and move money to what they consider "the closest" comparable investment automatically although I usually get advanced notice. I'm guessing its legal although advance notice seems appropriate (not sure if its required or not). This is the reason why whenever I leave a job the first thing I do is roll the 401K out and into an IRA. (I've thought about leaving jobs and returning weeks later just to do this :)).

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Re: Is This Action by Megacorp Legal?

Post by Angelus359 » Wed Feb 14, 2018 9:35 am

I've seen this happen, but when it happened, everyone was moved to vanguard target date funds where the closest date to them bring 65 was used
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dbr
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Re: Is This Action by Megacorp Legal?

Post by dbr » Wed Feb 14, 2018 9:39 am

DaftInvestor wrote:
Wed Feb 14, 2018 9:33 am
Is it possible your friend got a notice but didn't open it?
I've had several companies change investment options and move money to what they consider "the closest" comparable investment automatically although I usually get advanced notice. I'm guessing its legal although advance notice seems appropriate (not sure if its required or not). This is the reason why whenever I leave a job the first thing I do is roll the 401K out and into an IRA. (I've thought about leaving jobs and returning weeks later just to do this :)).
My 401k has done things like this. In every case there was exhaustive advanced notice and every opportunity to adjust investment selections to use the new fund offerings appropriately. There was also a default arrangement that one would get if one did not pay attention or if one did nothing. Usually things like this are the investors own fault. It is not conceivable that they altered everyone's investment selections and didn't tell them until after the fact or not at all. One reason to never "not peek" is to at least make sure one's contact information is up to date in all accounts. As I recall notice of changes was sent by e-mail, by snail mail, and posted as notices on line.

vested1
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 9:41 am

DaftInvestor wrote:
Wed Feb 14, 2018 9:33 am
Is it possible your friend got a notice but didn't open it?
I've had several companies change investment options and move money to what they consider "the closest" comparable investment automatically although I usually get advanced notice. I'm guessing its legal although advance notice seems appropriate (not sure if its required or not). This is the reason why whenever I leave a job the first thing I do is roll the 401K out and into an IRA. (I've thought about leaving jobs and returning weeks later just to do this :)).
I retired from this company 9 years ago. We always got notices well in advance of pending changes to choices in the 401k and had a deadline to choose. If I remember correctly the default if nothing was chosen would be to automatically transfer all monies to MM. Not so this time.

Believe me, my friend is on top of this, as are many of our mutual friends who still have 401k's at Megacorp. My friend, being a recent retiree checks his accounts daily, and has since long before retirement. He is fastidious with record keeping, and he showed me his records yesterday, where he tracks daily gain and loss in every account.

I can understand how one individual could miss a snail mail or an email informing them of an impending change, but not the unanimous surprise of the perhaps 20 individuals he contacted in January and February asking if they had noticed the change in their accounts, or if they had any warning.

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Re: Is This Action by Megacorp Legal?

Post by dcabler » Wed Feb 14, 2018 9:43 am

Happens everywhere I've worked. But we always received advanced notice of the changes as well as notice of the mapping of old funds to new funds.

Even when a company doesn't change who holds their 401K, there is usually a committee that is monitoring the funds and making changes over time, dropping old funds and adding new ones. I've tried to get on that committee at a couple of megacorps, but with no success. However, I have in the past sent them detailed analysis to show where they had funds that were almost complete overlaps of each other, and they seemed to take that into consideration when they made their next round of changes.

dbr
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Re: Is This Action by Megacorp Legal?

Post by dbr » Wed Feb 14, 2018 9:44 am

vested1 wrote:
Wed Feb 14, 2018 9:41 am
DaftInvestor wrote:
Wed Feb 14, 2018 9:33 am
Is it possible your friend got a notice but didn't open it?
I've had several companies change investment options and move money to what they consider "the closest" comparable investment automatically although I usually get advanced notice. I'm guessing its legal although advance notice seems appropriate (not sure if its required or not). This is the reason why whenever I leave a job the first thing I do is roll the 401K out and into an IRA. (I've thought about leaving jobs and returning weeks later just to do this :)).
I retired from this company 9 years ago. We always got notices well in advance of pending changes to choices in the 401k and had a deadline to choose. If I remember correctly the default if nothing was chosen would be to automatically transfer all monies to MM. Not so this time.

Believe me, my friend is on top of this, as are many of our mutual friends who still have 401k's at Megacorp. My friend, being a recent retiree checks his accounts daily, and has since long before retirement. He is fastidious with record keeping, and he showed me his records yesterday, where he tracks daily gain and loss in every account.

I can understand how one individual could miss a snail mail or an email informing them of an impending change, but not the unanimous surprise of the perhaps 20 individuals he contacted in January and February asking if they had noticed the change in their accounts.
In that case questions should surely be asked of the executives of the company.

I have no idea if there is some sort of illegality in failing to provide notice of changes.

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Re: Is This Action by Megacorp Legal?

Post by TravelGeek » Wed Feb 14, 2018 9:48 am

vested1 wrote:
Wed Feb 14, 2018 9:41 am

Believe me, my friend is on top of this, as are many of our mutual friends who still have 401k's at Megacorp. My friend, being a recent retiree checks his accounts daily, and has since long before retirement. He is fastidious with record keeping, and he showed me his records yesterday, where he tracks daily gain and loss in every account.
And yet the change and yesterday was Feb 13. Why did he not take action after seeing the changes in his account on Jan 2?

As others here, 8 have always gotten notifications. In younger/dumber/busier years I may have not paid as much attention as I do today, and I had a much more complex (stupid) 401k asset allocation. But today I am tracking them closely.

My gut feel is that they can’t legally change without notification and that there was notification given (and somehow missed). But IANAL.

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Re: Is This Action by Megacorp Legal?

Post by bottlecap » Wed Feb 14, 2018 9:53 am

Your post is way too long to fully read.

But I’m betting your friend got notice and didn’t read it. Even if that’s what all the other 300 employees told him when he personally spoke with each of them...

If he really didn’t, he can talk to an ERISA lawyer if he has any actual damages. Or look at the statutes and regulations himself.

ERISA is pretty exacting. It’s possible there is some recourse. If you can point to a specific violation, oftentimes the plan must make the participant whole.

I successfully argued this when my wife’s employer over contributed, the market went down, and they removed additional shares that were hers to make up for the loss. They initially balked. But I wrote a letter citing the federal statute and it worked.

JT
Last edited by bottlecap on Wed Feb 14, 2018 9:55 am, edited 1 time in total.

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DaftInvestor
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Re: Is This Action by Megacorp Legal?

Post by DaftInvestor » Wed Feb 14, 2018 9:55 am

vested1 wrote:
Wed Feb 14, 2018 9:41 am
DaftInvestor wrote:
Wed Feb 14, 2018 9:33 am
Is it possible your friend got a notice but didn't open it?
I've had several companies change investment options and move money to what they consider "the closest" comparable investment automatically although I usually get advanced notice. I'm guessing its legal although advance notice seems appropriate (not sure if its required or not). This is the reason why whenever I leave a job the first thing I do is roll the 401K out and into an IRA. (I've thought about leaving jobs and returning weeks later just to do this :)).
I retired from this company 9 years ago. We always got notices well in advance of pending changes to choices in the 401k and had a deadline to choose. If I remember correctly the default if nothing was chosen would be to automatically transfer all monies to MM. Not so this time.

Believe me, my friend is on top of this, as are many of our mutual friends who still have 401k's at Megacorp. My friend, being a recent retiree checks his accounts daily, and has since long before retirement. He is fastidious with record keeping, and he showed me his records yesterday, where he tracks daily gain and loss in every account.

I can understand how one individual could miss a snail mail or an email informing them of an impending change, but not the unanimous surprise of the perhaps 20 individuals he contacted in January and February asking if they had noticed the change in their accounts, or if they had any warning.
I've had 3 different companies re-map investments - they have never defaulted to a MM - they always seem to try to re-map to similar investments.
In any case - I'm not a lawyer but a few Google searches do seem to indicate that advance notice should have been given. For example from"
https://money.usnews.com/money/blogs/th ... und-change
There is this statement:
Plan sponsors are required to provide participants with advance notice of such changes
What did they tell your friend when he asked why they did this without advanced notice?

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 9:57 am

dcabler wrote:
Wed Feb 14, 2018 9:43 am
Happens everywhere I've worked. But we always received advanced notice of the changes as well as notice of the mapping of old funds to new funds.

Even when a company doesn't change who holds their 401K, there is usually a committee that is monitoring the funds and making changes over time, dropping old funds and adding new ones. I've tried to get on that committee at a couple of megacorps, but with no success. However, I have in the past sent them detailed analysis to show where they had funds that were almost complete overlaps of each other, and they seemed to take that into consideration when they made their next round of changes.
There's no harm of adding that the investment firm involved is Fidelity, which makes this occurrence even more surprising. Since the IRA and 401k both reside at Fidelity the liquidation of the 401k should go smoothly. However, due to the fact that my friend receives regular emails and updates from Fidelity it is also surprising that they didn't send out notices to 401k participants. All active employees are locked into using Fidelity as the management company, and most choose them when transitioning to retirement.

It is inconceivable to me that Fidelity would not have been aware of these impending changes long before agreeing to them with Megacorp. The only ones left out of this decision appears to be the participants. While the choice of funds must by necessity be done in collaboration between the Megacorp and Fidelity, the movement of existing positions into others should not be at their discretion.

vested1
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 9:57 am

bottlecap wrote:
Wed Feb 14, 2018 9:53 am
Your post is way too long to fully read.



JT
Then I suggest you don't read it.

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DaftInvestor
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Re: Is This Action by Megacorp Legal?

Post by DaftInvestor » Wed Feb 14, 2018 10:06 am

...........
Last edited by DaftInvestor on Wed Feb 14, 2018 11:45 am, edited 3 times in total.

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JamesSFO
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Re: Is This Action by Megacorp Legal?

Post by JamesSFO » Wed Feb 14, 2018 10:07 am

I find it hard to imagine a MegaCorp actually would get this wrong, remapping funds happens regularly. When we switched MMkt funds for our SME in 2017 we had to send notices and wait and what not. Even though the impact to participants would have been 0 (nobody at our SME 401K uses the MMkt regularly).

Perhaps check in with HR/payroll from a place of inquiry, "hey I'm confused by this, was a notice sent" and see what they say.

vested1
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 10:12 am

TravelGeek wrote:
Wed Feb 14, 2018 9:48 am
vested1 wrote:
Wed Feb 14, 2018 9:41 am

Believe me, my friend is on top of this, as are many of our mutual friends who still have 401k's at Megacorp. My friend, being a recent retiree checks his accounts daily, and has since long before retirement. He is fastidious with record keeping, and he showed me his records yesterday, where he tracks daily gain and loss in every account.
And yet the change and yesterday was Feb 13. Why did he not take action after seeing the changes in his account on Jan 2?

As others here, 8 have always gotten notifications. In younger/dumber/busier years I may have not paid as much attention as I do today, and I had a much more complex (stupid) 401k asset allocation. But today I am tracking them closely.

My gut feel is that they can’t legally change without notification and that there was notification given (and somehow missed). But IANAL.
As a fairly recent retiree he has less confidence than he will a year from now. I'm helping in that regard, which explains our frequent discussions. Recency bias also plays a role, especially with new retirees. The changes which occurred on 1/1/18 that increased his equity allocation looked OK at first I suppose, until they didn't. He didn't perceive this as an emergency, which I may have. He did move out of the 2015 target retirement fund after finally being able to find the ER and the makeup of the fund, but the bond choices weren't good.

Even many here would council caution or a waiting period before liquidating half of life savings and investing differently for a new retiree.

In our conversations I resist the urge to suggest particular investments, but I certainly would have mentioned the increase in risk if he had asked. He's new to the concept of rebalancing. He knew that his new allocation was out of whack, but not by the amount I identified yesterday.

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Re: Is This Action by Megacorp Legal?

Post by oldcomputerguy » Wed Feb 14, 2018 10:13 am

vested1 wrote:
Wed Feb 14, 2018 9:57 am
There's no harm of adding that the investment firm involved is Fidelity, which makes this occurrence even more surprising.
Indeed. Did your friend contact Fidelity and ask them what happened? What did they say?
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 10:20 am

DaftInvestor wrote:
Wed Feb 14, 2018 10:06 am
vested1 wrote:
Wed Feb 14, 2018 9:57 am
dcabler wrote:
Wed Feb 14, 2018 9:43 am

So this begs the questions:
1) When he called Fidelity and asked them if there should have been advanced notice what did they say?
2) When he called Megacorp HR and asked them if there should have been advanced notice what did they say?
And lastly - as was asked above:
3) If he is checking his balances daily why didn't he move things appropriately the day after the shifts were made (back on Jan 2)?

1&2. Don't know. I stopped after suggesting that he may be a partner in an upcoming class action suit. He is not litigious, merely angry at this point. I didn't want to add to his pre-existing anger and chose to let him think about his response to Fidelity and retirement services. His focus is to stop the bleeding, after which I assume he will pursue the answers to these questions.
3. He was focused more on balances than keeping his AA in balance. In retrospect he knows much more than I did at this stage of transitioning to self managed investment.

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DaftInvestor
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Re: Is This Action by Megacorp Legal?

Post by DaftInvestor » Wed Feb 14, 2018 10:28 am

vested1 wrote:
Wed Feb 14, 2018 9:57 am
dcabler wrote:
Wed Feb 14, 2018 9:43 am

So this begs the questions:
1) When he called Fidelity and asked them if there should have been advanced notice what did they say?
2) When he called Megacorp HR and asked them if there should have been advanced notice what did they say?
And lastly - as was asked above:
3) If he is checking his balances daily why didn't he move things appropriately the day after the shifts were made (back on Jan 2)?

1&2. Don't know. I stopped after suggesting that he may be a partner in an upcoming class action suit. He is not litigious, merely angry at this point. I didn't want to add to his pre-existing anger and chose to let him think about his response to Fidelity and retirement services. His focus is to stop the bleeding, after which I assume he will pursue the answers to these questions.
3. He was focused more on balances than keeping his AA in balance. In retrospect he knows much more than I did at this stage of transitioning to self managed investment.
I wouldn't think simply asking the question would negate him from a class-action lawsuit. I personally don't understand how he can be so angry and not pick up the phone. Their reply might simply be "notifications went out - you didn't get yours? ". (My notifications, since I'm paperless, all appear in a "statement" folder in my account but I also get an email stating an updated document is there).
I would also think since he checks balances daily and the market drop didn't occur until a month later that he wouldn't have much a case since he did nothing to mitigate his damages. It seems to me that he'd have a stronger argument if the market tanked on Jan 2 or if he was the type of person who waits until a quarterly statement to see what changed. But I'm not a lawyer.

vested1
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 10:32 am

DaftInvestor wrote:
Wed Feb 14, 2018 9:55 am
For example from"
https://money.usnews.com/money/blogs/th ... und-change
There is this statement:
Plan sponsors are required to provide participants with advance notice of such changes
What did they tell your friend when he asked why they did this without advanced notice?
Thanks for the link. I just emailed it to my friend and asked these very questions.

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Re: Is This Action by Megacorp Legal?

Post by KlingKlang » Wed Feb 14, 2018 10:46 am

oldcomputerguy wrote:
Wed Feb 14, 2018 10:13 am
vested1 wrote:
Wed Feb 14, 2018 9:57 am
There's no harm of adding that the investment firm involved is Fidelity, which makes this occurrence even more surprising.
Indeed. Did your friend contact Fidelity and ask them what happened? What did they say?
Just had this happen to me last summer. Previous employer's 401(k) stable value fund was converted to a Fidelity 401(k) stable value fund with 1/2 the yield. Apparently if you're not an active employee they don't have to notify you of anything. Your only defense is to roll everything over to a tIRA.

vested1
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 10:54 am

KlingKlang wrote:
Wed Feb 14, 2018 10:46 am
oldcomputerguy wrote:
Wed Feb 14, 2018 10:13 am
vested1 wrote:
Wed Feb 14, 2018 9:57 am
There's no harm of adding that the investment firm involved is Fidelity, which makes this occurrence even more surprising.
Indeed. Did your friend contact Fidelity and ask them what happened? What did they say?
Just had this happen to me last summer. Previous employer's 401(k) stable value fund was converted to a Fidelity 401(k) stable value fund with 1/2 the yield. Apparently if you're not an active employee they don't have to notify you of anything. Your only defense is to roll everything over to a tIRA.
I would think that the plan sponsors would still be required to inform you, regardless of employment status. I have been tactfully suggesting that he dump the 401k since his retirement, because the fees are so opaque. I pointed out the only advantage of retaining a 401k was debt protection, which is not his concern. I also pointed out the risk he is taking on by retaining a single stock of Megacorp, even though he reduced that position significantly in the last few months. He asked me if I owned any stock in the Megacorp now, and I told him yes, but because it was in VTSAX the percentage of my portfolio in Megacorp was a fraction of 1%.

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Re: Is This Action by Megacorp Legal?

Post by deltaneutral83 » Wed Feb 14, 2018 10:57 am

I'm a little confused, the funds were moved Jan 1 and the move was not known until mid Feb? No statements, no ability to log into account and see?

Pigeye Brewster
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Re: Is This Action by Megacorp Legal?

Post by Pigeye Brewster » Wed Feb 14, 2018 11:01 am

From the OP, I'm not clear on whether or not he's liquidated the new funds. If not, after the run up in January and the selloff in February, the YTD total return on the S&P 500 through yesterday's close is -0.2%. Meanwhile, the total return for the Barclays Total Bond Market Index is -2.0%.

So the actual impact of having an equity allocation 12% higher than desired may not be all that significant. And it may actually be in his favor.

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Re: Is This Action by Megacorp Legal?

Post by Nearly A Moose » Wed Feb 14, 2018 11:05 am

Not to throw cold water on this, but the S&P500 is basically even with where it was January 2. So in broad strokes, your friend's portfolio would be more or less in the same place regardless of the equity allocation. And, any additional losses or gains aren't that high in the grand scheme of things - only about 12% of the drop/gain - I'm assuming he had a non trivial equity exposure before. It's understandable to be annoyed, but it doesn't really sound like a lot of harm occurred here. He also apparently didn't seem to mind that he was gaining more in January than his planned AA should have allowed.

My guess is also that people missed the notification, but perhaps they really did do a poor job of communicating the change. People could email the administrator, but I doubt anything would come of it. Anyway, it sounds like your friend fixed the problem and has rolled things over, so this will be a moot point. But it's a good idea to once a month eyeball ones holding to make sure strange things aren't happening.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 11:10 am

deltaneutral83 wrote:
Wed Feb 14, 2018 10:57 am
I'm a little confused, the funds were moved Jan 1 and the move was not known until mid Feb? No statements, no ability to log into account and see?
No, he knew soon after, because logging onto his accounts at Fidelity has both the IRA and the 401k balances exhibited. This first page was his main concern. Subsequent pages show allocations to either the IRA or the 401k.

It's somewhat surprising to me that many here are condemning a new retiree for not taking immediate action. I wonder how many who ask this question are new retirees who are still learning the ropes. I consider it great progress that he pays attention to fees and ER's now, and his refusal to sign up for Fidelity PAS. It is also wise to ask other participants in the 401k if they had the same experience rather than jumping to the conclusion that you are getting ripped off or taken advantage of. It is in his nature to question himself first.

This is proven by his question to others if they had received any notice of the changes, which was unanimously answered in the negative. Next step, and perhaps very late in the game is to call Fidelity and Megacorp.

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Re: Is This Action by Megacorp Legal?

Post by pkcrafter » Wed Feb 14, 2018 11:14 am

deltaneutral83 wrote:
Wed Feb 14, 2018 10:57 am
I'm a little confused, the funds were moved Jan 1 and the move was not known until mid Feb? No statements, no ability to log into account and see?
Apparently the OP's friend did know, but really didn't get excited until February when he lost some $$.

By the way, Vested1, this won't help if your friend is really upset enough to file a complaint. And if the AA difference is 12% more equity, it didn't change the loss much from what he would have had with his old allocation. Unless he can prove that no alerts were sent out, I don't see much to do except reset the fund choices and equity allocation, or roll over the account. If he has some low cost Fidelity index funds, he maybe should say with the program.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Is This Action by Megacorp Legal?

Post by bottlecap » Wed Feb 14, 2018 11:17 am

vested1 wrote:
Wed Feb 14, 2018 9:57 am
bottlecap wrote:
Wed Feb 14, 2018 9:53 am
Your post is way too long to fully read.



JT
Then I suggest you don't read it.
I'm trying to help you. And also notify you as it relates the remainder of my previous post.

Many people wonder why they don't get enough responses or accurate responses, but others do.

Long posts with extraneous information is the number one reason.

Good luck,

JT

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Re: Is This Action by Megacorp Legal?

Post by Nate79 » Wed Feb 14, 2018 11:18 am

At my megacorp funds have come and gone and we are automatically put into "equivalent" funds, whether they are actually equivalent from a bogleheads view or not. We always get notice. Both by mail and within the message center of the 401k online portal. Now it is possible I think to opt out of mail and then only messages would come online.

So I find it HIGHLY unlikely that they did not inform in whatever method they would normally receive 401k notices and statements.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 11:33 am

Pigeye Brewster wrote:
Wed Feb 14, 2018 11:01 am
From the OP, I'm not clear on whether or not he's liquidated the new funds. If not, after the run up in January and the selloff in February, the YTD total return on the S&P 500 through yesterday's close is -0.2%. Meanwhile, the total return for the Barclays Total Bond Market Index is -2.0%.

So the actual impact of having an equity allocation 12% higher than desired may not be all that significant. And it may actually be in his favor.
To be fair, his outrage centered around someone making choices in his 401k which didn't involve him. Mine, more obliquely stated to him were that a 12% spike in equity may have had a larger impact in short term paper losses. This was only to make a point on having an AA that matched his risk tolerance. He had moved things around in the 401k a little bit, but didn't change the revised AA significantly because of the provided choices. He is in the process today of liquidating all of the 401k and adding the proceeds to the IRA. He will rebalance to his original AA simultaneously.

As for the S&P, he is not using that index. His 401k lists a total stock, but doesn't specify much more. He showed me the YTD on what he's invested in, and you're right, it's not a disaster, but it's still less through no choice of his own. I see members grousing about a $4.95 trading fee here and have to smile. He uses, and will end up being exclusively in two funds plus cash. Those funds are FSTVX (Fidelity Total U.S. Stock) and FSITX (Fidelity total U.S Bonds). We talked about the advisability of adding international stocks but he is currently avoiding that. The YTD losses on FSTVX and FSITX are -.51% and -2.04% respectively. If the correction had turned into a bear, a 12% shift in AA would have had different results.

In our conversation yesterday about the recent losses I didn't highlight how the changes in the 401k had affected his balances, but encouraged him to look at the longer term picture, and how those gains had been very good. I showed him how to compare his current balance to balances in the recent past, and to not concentrate on the difference between the top of the market and the bottom of the correction as meaningful of anything.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 11:36 am

bottlecap wrote:
Wed Feb 14, 2018 11:17 am
vested1 wrote:
Wed Feb 14, 2018 9:57 am
bottlecap wrote:
Wed Feb 14, 2018 9:53 am
Your post is way too long to fully read.



JT
Then I suggest you don't read it.
I'm trying to help you. And also notify you as it relates the remainder of my previous post.

Many people wonder why they don't get enough responses or accurate responses, but others do.

Long posts with extraneous information is the number one reason.

Good luck,

JT
Your comment is well taken and common to my experience. I struggle with brevity at times. Then again, I personally appreciate longer posts if they provide information that can forestall further questions which aren't relevant.

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Re: Is This Action by Megacorp Legal?

Post by michaeljc70 » Wed Feb 14, 2018 11:39 am

Another reason I would never leave my 401k at an employer.

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Re: Is This Action by Megacorp Legal?

Post by nisiprius » Wed Feb 14, 2018 11:50 am

I've had a company send me a notice that they would be eliminating one fund in the 401(k) and automatically exchanging my holdings in it for a not-very-equivalent fund. (I didn't pay much attention to it because I have not been with the company for years, and as far as I know have a balance of exactly $0.00 in the 401(k). But somewhere there is a "zombie account" and I do occasionally get random notices).

The notice doesn't really matter that much, because the new choices are whatever they are... and if he doesn't like the specific choice they made for him, it's tax-advantaged and if there's one he dislikes less, he can just exchange it himself.

Let's suppose there really was no notice and it was illegal. So what? Why would he spend a lot of time and psychic energy on it? It's really unlikely that some judge will say "Megacorp, shame on you, pay $100,000 to every 401(k) participant in punitive damages." Just chalk it up to "I work for the same kind of company Dilbert works for, they have a bad 401(k) plan and they manage it carelessly." Something to know. The only concrete action I'd suggest is watching the 401(k) like a hawk and verifying that the payroll deductions are really going into the 401(k) promptly. But it doesn't sound like shenanigans. How does it benefit Megacorp not to notify employees?

So I'm with others. I suspect your friend really was notified and missed the notification. That's nothing to be ashamed of, I get enough mailing from financial firms that I have the financial equivalent of "alarm fatigue," and I do miss notifications. The idea that "we notified you" is part of a long list of what are effectively asymmetrical-power fictions, like "you voluntarily agreed to accept arbitration" or "you really read a 110-page agreement displayed in a one-by-three-inch five-line screen window with a scroll bar, and we know it because you scrolled to the end like we forced you to."
Last edited by nisiprius on Wed Feb 14, 2018 12:00 pm, edited 2 times in total.
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Re: Is This Action by Megacorp Legal?

Post by FrankLUSMC » Wed Feb 14, 2018 11:58 am

vested1 wrote:
Wed Feb 14, 2018 9:57 am
dcabler wrote:
Wed Feb 14, 2018 9:43 am
Happens everywhere I've worked. But we always received advanced notice of the changes as well as notice of the mapping of old funds to new funds.

Even when a company doesn't change who holds their 401K, there is usually a committee that is monitoring the funds and making changes over time, dropping old funds and adding new ones. I've tried to get on that committee at a couple of megacorps, but with no success. However, I have in the past sent them detailed analysis to show where they had funds that were almost complete overlaps of each other, and they seemed to take that into consideration when they made their next round of changes.
There's no harm of adding that the investment firm involved is Fidelity, which makes this occurrence even more surprising. Since the IRA and 401k both reside at Fidelity the liquidation of the 401k should go smoothly. However, due to the fact that my friend receives regular emails and updates from Fidelity it is also surprising that they didn't send out notices to 401k participants. All active employees are locked into using Fidelity as the management company, and most choose them when transitioning to retirement.

It is inconceivable to me that Fidelity would not have been aware of these impending changes long before agreeing to them with Megacorp. The only ones left out of this decision appears to be the participants. While the choice of funds must by necessity be done in collaboration between the Megacorp and Fidelity, the movement of existing positions into others should not be at their discretion.
Notice of changes to the 401k come from Megacorp and Not Fidelity. The search for notification may be in the wrong area here.
I too have encountered changes over 30 years from different 401k management. All have given 90 days notice as well as the new funds coming and the old funds leaving and what is to be done if there isn't a reasonable matching fund.
Good luck.

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Re: Is This Action by Megacorp Legal?

Post by Big Dog » Wed Feb 14, 2018 12:12 pm

It's somewhat surprising to me that many here are condemning a new retiree for not taking immediate action. I wonder how many who ask this question are new retirees who are still learning the ropes.
This has (almost) nothing to do with being a retiree.

By law, MegaCorp has to notify all Plan participants of a significant plan change in advance, along with the black-out time. And that notice will include the fund-to-fund mapping. If one does not like the end result, one can transfer money on the day prior to the blackout date, so the final transfer will end up where ee/retiree prefers.

Has retiree moved? Has retiree kept his/her contact info current with HR/Retiree Services?

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Re: Is This Action by Megacorp Legal?

Post by rgs92 » Wed Feb 14, 2018 12:19 pm

In my 401Ks over many years, those kind of shifts happened too many times for me to count, even with significant asset allocation changes or ER changes. And this was with major companies. And you could always move the investments at any time later usually, so it should not be a big deal.
And if they are eliminating good investment options, well, there's nothing you can do about that.
Last edited by rgs92 on Wed Feb 14, 2018 12:29 pm, edited 1 time in total.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 12:22 pm

nisiprius wrote:
Wed Feb 14, 2018 11:50 am
Let's suppose there really was no notice and it was illegal. So what? Why would he spend a lot of time and psychic energy on it? It's really unlikely that some judge will say "Megacorp, shame on you, pay $100,000 to every 401(k) participant in punitive damages." Just chalk it up to "I work for the same kind of company Dilbert works for, they have a bad 401(k) plan and they manage it carelessly." Something to know.
Agreed, and very little impact is expected for my friend because he's paying attention (more now) and the fact that the market has rebounded. He even approached me for my opinion, which was only to verify with him that liquidating the 401k and transitioning to the existing IRA was a good move. I wonder about the other 299,999 current and former employees who aren't paying attention and may not have noticed a change in AA or investments. If it was only him I would say it was his fault for ignoring legal notices. I'm sure he would agree.

No one has really justified how his investments in the 401k were transferred to non-comparable funds without his permission. A few of these he wouldn't have touched with a ten foot pole. For instance, why would he have chosen a total stock index fund and also chosen a large cap index and a small/midcap index? Too much overlap. Why would he have chosen a target fund with contained a portion of international stocks and a separate international stock index fund when he never had international stocks previously? Weird.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 12:27 pm

Big Dog wrote:
Wed Feb 14, 2018 12:12 pm
It's somewhat surprising to me that many here are condemning a new retiree for not taking immediate action. I wonder how many who ask this question are new retirees who are still learning the ropes.
This has (almost) nothing to do with being a retiree.

By law, MegaCorp has to notify all Plan participants of a significant plan change in advance, along with the black-out time. And that notice will include the fund-to-fund mapping. If one does not like the end result, one can transfer money on the day prior to the blackout date, so the final transfer will end up where ee/retiree prefers.

Has retiree moved? Has retiree kept his/her contact info current with HR/Retiree Services?
He's lived in the same house for two decades. He is current with retiree services as they are heavily involved with life/health insurance as well as investments. I jokingly mentioned to him that the transfer of his 401k to the IRA would feel like the finalization of a divorce, but with a happy ending.

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Re: Is This Action by Megacorp Legal?

Post by NotWhoYouThink » Wed Feb 14, 2018 12:29 pm

Sounds like the retiree saw the move in January and decided to do nothing. Then when the market dropped he complained, because he is a recent retiree and something bad happened.

If the market had gone up he wouldn't have mentioned it, he would have thought his retirement plan was working as expected.

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Re: Is This Action by Megacorp Legal?

Post by mortfree » Wed Feb 14, 2018 12:36 pm

things like the above is why I am taking advantage of the Brokerage Account that is available in my Fidelity 401k. I assume that when the company decides to switch out funds I will have zero concerns b/c I do not contribute anything to the funds in their list.

anyone else do/believe the same?

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Re: Is This Action by Megacorp Legal?

Post by sergeant » Wed Feb 14, 2018 12:37 pm

I wouldn't like it if this happened to me but really don't think it's a big deal in this case. Wonder if he would be complaining if the market had done nothing but gone up?
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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 12:44 pm

NotWhoYouThink wrote:
Wed Feb 14, 2018 12:29 pm
Sounds like the retiree saw the move in January and decided to do nothing. Then when the market dropped he complained, because he is a recent retiree and something bad happened.

If the market had gone up he wouldn't have mentioned it, he would have thought his retirement plan was working as expected.
On the contrary, he judiciously decided to check with other plan participants before jumping to conclusions. When his suspicions were verified (to him) he moved from alarm to anger, but not exceedingly so. I was the one concerned about the change in AA, not him, and he didn't even concern himself with the temporary losses, much to his benefit.

Overall AA was affected by 12%, going from 60% equity to 72% equity. This equated to an even higher tilt to equity in the 401k, which basically abandoned bonds.

I remember previous instances with the Megacorp 401k where investment choices were changed. All of my friends and I were asking each other for opinions on which ones to choose. There was no evidence of that this time apparently because no one knew it was coming, or so I was told.

And yes, he would have mentioned it to me because he has immersed himself in reading about investment strategy lately, and has been bouncing ideas off of me and a few others. The fact remains, if it proves to be a fact, that no notice or insufficient notice was given at the very least.

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Re: Is This Action by Megacorp Legal?

Post by Pigeye Brewster » Wed Feb 14, 2018 12:45 pm

vested1 wrote:
Wed Feb 14, 2018 11:33 am
Pigeye Brewster wrote:
Wed Feb 14, 2018 11:01 am
From the OP, I'm not clear on whether or not he's liquidated the new funds. If not, after the run up in January and the selloff in February, the YTD total return on the S&P 500 through yesterday's close is -0.2%. Meanwhile, the total return for the Barclays Total Bond Market Index is -2.0%.

So the actual impact of having an equity allocation 12% higher than desired may not be all that significant. And it may actually be in his favor.
To be fair, his outrage centered around someone making choices in his 401k which didn't involve him. Mine, more obliquely stated to him were that a 12% spike in equity may have had a larger impact in short term paper losses. This was only to make a point on having an AA that matched his risk tolerance. He had moved things around in the 401k a little bit, but didn't change the revised AA significantly because of the provided choices. He is in the process today of liquidating all of the 401k and adding the proceeds to the IRA. He will rebalance to his original AA simultaneously.

As for the S&P, he is not using that index. His 401k lists a total stock, but doesn't specify much more. He showed me the YTD on what he's invested in, and you're right, it's not a disaster, but it's still less through no choice of his own. I see members grousing about a $4.95 trading fee here and have to smile. He uses, and will end up being exclusively in two funds plus cash. Those funds are FSTVX (Fidelity Total U.S. Stock) and FSITX (Fidelity total U.S Bonds). We talked about the advisability of adding international stocks but he is currently avoiding that. The YTD losses on FSTVX and FSITX are -.51% and -2.04% respectively. If the correction had turned into a bear, a 12% shift in AA would have had different results.

In our conversation yesterday about the recent losses I didn't highlight how the changes in the 401k had affected his balances, but encouraged him to look at the longer term picture, and how those gains had been very good. I showed him how to compare his current balance to balances in the recent past, and to not concentrate on the difference between the top of the market and the bottom of the correction as meaningful of anything.
I was just attempting to provide some context on whether any actual economic loss has occurred.

If Megacorp failed to provide notice, that is not good. Your friend has a legitimate gripe that no notice was sent.

But even if no notice was provided, your friend noticed the change on his own because he checks his account on a regular basis. So to some extent, that mitigates the impact of no notice. He also took no action for a fairly long period of time.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 12:46 pm

sergeant wrote:
Wed Feb 14, 2018 12:37 pm
I wouldn't like it if this happened to me but really don't think it's a big deal in this case. Wonder if he would be complaining if the market had done nothing but gone up?
Or cratered long term?

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Re: Is This Action by Megacorp Legal?

Post by Gufomel » Wed Feb 14, 2018 1:01 pm

In opinion it doesn't really matter what the performance is over the short-term or long-term for the various concerned funds. What matters (again, in my opinion) is whether advance notice was or was not sent. If it was not, that seems absurd to me, if not illegal. From a legality standpoint, I don't really care what the funds did after the change. Perhaps there's potential for additional monetary compensation its proven that the new funds performed worse and legal action is taken. But really the two questions in my mind at this point are 1) was advanced notice sent or not; 2) if not, is that actually illegal? If its determined to be illegal, then determine whether this resulted in negative impact to the investors or not and whether legal action is worth pursuing.

I have no knowledge of the legality of this, but am interested to hear if you ever find a resolution (again, first of all was he or was he not given advance notice).

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Wed Feb 14, 2018 1:05 pm

Pigeye Brewster wrote:
Wed Feb 14, 2018 12:45 pm

I was just attempting to provide some context on whether any actual economic loss has occurred.

If Megacorp failed to provide notice, that is not good. Your friend has a legitimate gripe that no notice was sent.

But even if no notice was provided, your friend noticed the change on his own because he checks his account on a regular basis. So to some extent, that mitigates the impact of no notice. He also took no action for a fairly long period of time.
Thanks to you and all others who responded. You are of course correct on the small economic impact. It may be hard for some to relate to how this feels for a retiree, such as my friend. When you get longer in the tooth you have had your fill of those who disregard your wishes. When that involves the unauthorized manipulation of your life savings the quick draw to anger can be hard to resist. I admire my friend for being level headed during this event, and perhaps I was a bit reactive when I mentioned a class action lawsuit.

I admit to being a little over protective of my best friend.

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Re: Is This Action by Megacorp Legal?

Post by meowcat » Wed Feb 14, 2018 3:26 pm

michaeljc70 wrote:
Wed Feb 14, 2018 11:39 am
Another reason I would never leave my 401k at an employer.
Which confuses me even further. The OP said that his friend had rolled over his 401k to the same investment firm that holds his TIRA. Why would his employer have anything to do with the rolled over 401k? Am I missing something?
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Re: Is This Action by Megacorp Legal?

Post by michaeljc70 » Wed Feb 14, 2018 5:41 pm

meowcat wrote:
Wed Feb 14, 2018 3:26 pm
michaeljc70 wrote:
Wed Feb 14, 2018 11:39 am
Another reason I would never leave my 401k at an employer.
Which confuses me even further. The OP said that his friend had rolled over his 401k to the same investment firm that holds his TIRA. Why would his employer have anything to do with the rolled over 401k? Am I missing something?
Yes, that is confusing to me too.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Thu Feb 15, 2018 8:38 am

michaeljc70 wrote:
Wed Feb 14, 2018 5:41 pm
meowcat wrote:
Wed Feb 14, 2018 3:26 pm
michaeljc70 wrote:
Wed Feb 14, 2018 11:39 am
Another reason I would never leave my 401k at an employer.
Which confuses me even further. The OP said that his friend had rolled over his 401k to the same investment firm that holds his TIRA. Why would his employer have anything to do with the rolled over 401k? Am I missing something?
Yes, that is confusing to me too.
The 401k is still offered by the employer but the retiree can no longer contribute. Perhaps "rolled over" was the incorrect term, as Fidelity managed the 401k as well when my friend was employed. He took his lump sum retirement and opened an IRA at Fidelity.

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Re: Is This Action by Megacorp Legal?

Post by vested1 » Thu Feb 15, 2018 8:51 am

I think this qualifies as a tempest in a teapot. I Googled and found notice for the changes to the 401k, which was contained in a PDF with a vague title that would be easily discounted and assigned to the round file. The title didn't mention a change to the 401k. It's likely that my friend and current employees missed it because of the title, or because it was never sent out. The legal requirements appear to have been met.

There was a very narrow window of time to make new elections; a period of 3 days immediately before the transition. The list of the old funds and their supposed equal equivalents made no sense. The old choices were 5 and the new choices were in double digits. My friend's U.S. bond funds should have transitioned to U.S. bond funds but they didn't. He shouldn't have been assigned to international stocks and bonds since he none before, but he was.

Nothing nefarious in my opinion just incompetent planning by those who made 401k structure decisions based on a lack of knowledge of the composition of the new funds , as compared to the old ones.

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Re: Is This Action by Megacorp Legal?

Post by sabtastic » Thu Feb 15, 2018 8:59 am

The university of california did this a few years ago to DW. They got hot under the collar for "socially responsible" funds and forced everyone into them. They gave lots and lots of notice though. In fact they nearly broke their own arm patting themselves on the back about it...

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