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Frequently Asked Question

The company I work for was acquired by a larger company. My 401k has been frozen. What does this mean and what can I do about it?

Answer: When one company is acquired by another, there are three possible scenarios regarding the acquired company's 401k plan.

A. The acquired company may choose to terminate its 401k plan entirely. In this case, all employee contributions, vested employer matches and profits are returned. If the new company's 401k plan allows rollovers, employees of the acquired company can roll their money into the new plan. If it does not, they can roll their money into an IRA, or take a distribution. Rolling the money into an IRA or a new 401k will enable participants to preserve their retirement savings and avoid early withdrawal penalties.

B. If the features of the two companies' plans cannot be easily combined, the acquired company may opt to continue its plan. New employees would most likely be directed to the new company's plan, however.

C. The two plans may be merged. In this case, 401k assets of the acquired company's employees would be automatically rolled into the new plan. Combining two plans can be very complex, and can take anywhere from a week to several months. The plan is frozen during that time -- the money continues to earn interest, but participants can't make contributions or withdrawals.

In this type of situation, it is common for the new employer to take some time to determine what to do with retirement plans such as a 401k. The fact that the existing plan is frozen is not unusual -- and it may be left this way indefinitely (since there isn't any legal requirement to do otherwise).

In the interim, you should retain all the rights you had before the plan was frozen, except the right to make new investments. As long as the plan continues to be properly administered -- you continue to receive statements and are able to make investment transfers -- there isn't much you can do except wait for the company to decide what to do with your plan.

If your plan ceases to be properly administered (you stop receiving statements, or are no longer able to make transfers, for example) and your plan sponsor cannot explain the lapse to your satisfaction, you might want to contact an attorney or the Department of Labor at 202.219.8211 or www.dol.gov.

This is for educational purposes only. The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

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