What Happens to Unvested 401(k) Money in Merger?

Q My employer was purchased by another company. We were told that the day the sale took effect, we were terminated from our original employer (company A) and were rehired at the purchasing company (company B).

I am still at my same location, answering the same phone, serving the same customers.

The only downside has been that we are no longer in company A’s 401(k) plan. This meant that those of us with less than five years at company A lost unvested funds. I’m sure this resulted in a windfall for company A.

Do we have any right to recover these funds?

--B.H., Brea

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A Any forfeitures of unvested employer contributions (such as “matching” contributions) that occur because employees voluntarily or involuntarily leave before earning a fully vested right to those amounts can never be returned to the employer. Those amounts can only be allocated to other participants or be used to pay the costs of administering the plan.

However, if company A’s 401(k) plan was terminated because all of the employees went to work for company B, the Internal Revenue Service takes the position that every participant who had money in the plan when it was terminated must become fully vested, meaning the employer contributions would not be forfeited.

Even if the plan was not completely terminated, if a substantial portion of the participants were terminated because of the sale of the business, that may cause a partial termination of the plan. In that situation, the employees who were let go as a result of the sale also must become fully vested.

You should contact company A to see if there was such a termination of its plan.

--Kirk F. Maldonado

Employee benefits attorney

Riordan & McKinzie

Personal Data About Applicants

Q In applying for a job recently, I was asked to sign a document allowing the prospective employer to obtain information about applicant credit standing, credit capacity and credit-worthiness along with Department of Motor Vehicles records, civil records and criminal records.

The list seemed exhaustive and invasive. Is an employer limited in the amount of personal information that may be requested from an applicant?

--B.J., Hollywood

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A Although there are some limits on information that an employer may seek from an applicant, employers ordinarily can legally obtain the information you describe as part of the applicant-screening process.

An employer is not permitted to obtain information on an applicant’s prior health problems or workers’ compensation claims filed, for example, because that information might reveal a disability.

An employer may not seek information about prior arrests under California law, but can obtain records of prior convictions.

An employer may seek information about an applicant’s credit to determine that person’s trust-worthiness and good judgment, particularly for jobs involving fiduciary roles or the handling of money. The Fair Credit Reporting Act requires that employers alert applicants about credit checks and obtain authorizations from applicants before running such a check, but it does not prohibit an employer from gathering that information.

DMV records are obtained by many employers for jobs involving driving, since under the doctrine of negligent hiring if an employer hires a person with a bad driving record and that person injures someone, the employer can be held liable.

Criminal records may be obtained, as they are public records, and a history of criminal convictions may make an applicant unsuitable for a job that involves dealing with the public or handling money, for example.

Civil litigation records are also public, and they may indicate whether the person is irresponsible or litigious.

Just because an employer may lawfully obtain this information does not mean that it can always be taken into account in making hiring decisions, however.

A history of bad credit may be used to disqualify one from an accounting job but not from an assembly-line position, for example.

The information must have some relation to the job in question. Otherwise, the employer may be vulnerable to a claim of “disparate impact” discrimination if the selection criterion excludes an inordinate number of minorities or other individuals protected under the civil rights laws.

--James J. McDonald Jr.

Attorney, Fisher & Phillips

Labor law instructor, UC Irvine

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