Dec 4, 2008 7:48 pm US/Pacific
401k's for Mervyn's Employees May Be In Jeopardy
SAN FRANCISCO (CBS 5) ―
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Mervyn's Department Store.
CBS
There are a lot of nervous former Mervyn's employees wondering, what's in their financial future? CBS 5 Investigates has found out their 401k plans may be in jeopardy. It's a possibility that could send chills down the spine of anyone depending on a 401k.
CBS 5 Investigates was told the following by former employees, and a source inside the Mervyn's company who did not want to be named. When Mervyn's went to cash out those 401k accounts so employees could be paid, one of the fund management companies handling those 401k investments said, not so fast: We can't immediately turn all those fund investments into cash.
Here's the brief explanation as to why: Employees' money was sent to the plan administrator. The administrator put money in what are presumed to be diversified investments. But when cashing out, they couldn't liquidate everything.
Why? In part, we're told because the value of some investments has dropped. When that happens, they become illiquid. The result? No one is being paid out on their 401k because the money has to be divided fairly and they can't do that if they don't know exactly how much money is there.
Todd Jackson with the Oakland-based law firm
Lewis, Feinberg, Lee, Renaker & Jackson P.C. said under the federal Employee Retirement Income Security Act or ERISA, the plan that holds your 401k has a fiduciary duty to release funds immediately. In this case, there could be violations of federal rules.
Jackson suggested that former Mervyn's employees try to get as much information as possible from Mervyn's as to what exactly is making their funds illiquid. He also recommends that they get copies of the 401k plan's contract, to find out exactly under what conditions it allows for the freezing of assets.
Jackson speculated that under the current economic conditions, as thousands of people lose their jobs in mass layoffs and request a rollover of their 401k plans, similar situations could start happening more frequently.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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