Can Employers Leave 401(k) Money in Limbo?
Q: I recently received a disbursement check on my 401(k) account and was shocked at what I discovered. There were lag times of seven to 120 days between the time deductions were made from my paycheck to the point at which the contributions were recorded in my account. What is the law? Is there a limit on the time these funds can be kept in limbo? Is there any way I can file a complaint about how my employer is handling these accounts? --D.B.
A: Yes, there is a law regulating how quickly an employer must credit an employee’s 401(k) account with contributions withheld from paychecks. And yes, there is a way for you to complain if you think your account has been mishandled.
Section 2510.3-102 of the Department of Labor’s regulations requires employers to credit employee contributions to pension plans on the “earliest day” those deductions can be “reasonably segregated from the employer’s general assets.” The regulation adds that this period must not exceed 90 days from the time the money is withheld from the employee’s paycheck. Obviously, the point of the regulation is to ensure that employees are credited as soon as possible with any interest their pension contributions earn and to keep employers from taking unfair advantage by keeping a portion of those interest-earning contributions for themselves.
Workers who suspect that their 401(k) or other pension accounts are being mishandled should complain directly to the Department of Labor’s Pension and Welfare Benefits Administration. In Southern California, workers should write to David Ganz, area director of the Pension and Welfare Benefits Administration, 3660 Wilshire Blvd. Suite 718, Los Angeles, Calif. 90010. Ganz stresses that his office is set up to investigate only potential abuses and is not equipped to handle benefit disputes or other pension issues.
Company Takeover Affects Stock Price
Q: In 1972, I acquired five shares of Athena Communications. Eleven years later, the company was acquired by Tele-Communications, but I did not sell my shares to Tele-Communications. Since 1983, Tele-Communications has had numerous stock splits and has paid several dividends. I recently wrote to Tele-Communications and asked them what they would pay me for the Athena stock I still own. They offered me $12.50 per share, the same price they paid for the shares in 1983. Do I have to sell for that price? Don’t I own a piece of the surviving company? --M.E.K.
A: Unfortunately, you have boxed yourself into a difficult position, and about the only positive thing we can say is that you are lucky it doesn’t involve much money. Effectively, the only options you have are to either accept the $12.50 per share Tele-Communications is offering for your shares or sue the company to force them to pay more.
But before you rush off to retain a lawyer, our legal experts caution that your chances of success are virtually nonexistent. What harm or illegal act could you allege?
When a company offers to buy another company and successfully purchases the vast majority of its outstanding shares, any remaining shareholders who elect not to sell their stock are effectively at the mercy of the new majority owner. Tele-Communications struck such an deal. You chose not to participate in it, but your decision left you with exactly what you had to start with: five shares of Athena Communications. By not accepting the cash, you did not get a tiny stake in Tele-Communications.
Our experts recommend that you accept the $12.50 per share and thank your lucky stars that larger sums weren’t at stake.
No Silver Lining to Loss on House Sale
Q: I sold my home last year and lost about $30,000 in the process. I am told that I cannot deduct this loss from my income taxes because the house was my personal residence, not a piece of investment property. But I am also told that I can use my loss to increase the basis of the new house I purchased. Is this information correct? How would it work? --T.L.
A: Our tax experts say the advice you have been given is partially wrong, and the error is not in your favor.
It is true that losses on the sale of a personal residence are not deductible. But our experts also say that the IRS does not allow taxpayers to add those losses to their original residential tax basis, a move that would reduce the taxable gains they might realize when settling their deferred residential real estate profit accounts with Uncle Sam.
According to Colin Cooper, a certified public accountant in Tustin, the $30,000 loss on the sale of your house will have no effect on the tax basis of the house you subsequently purchased.
For example, let’s say the house you just sold was your first-ever home, and that you paid $250,000 for it, giving you a tax basis of $250,000. Now, let’s say you sold the house for $220,000, and repurchased a new home for $300,000. Your $30,000 loss isn’t deductible, and you can’t add it to the $250,000 basis to give you a new tax basis in your home of $280,000. However, because you have no gain to defer on the sale of the house, your new tax basis is the $300,000 purchase price of the replacement home.
Cooper says that while the advice you were originally given is certainly creative, he cautions that you will be hard pressed to prove your position should the IRS ever mount a challenge.
