A Long Fight to Get What Was Theirs, in a 401(k)
Five years, two articles in this space, assistance from the Labor Department and the Internal Revenue Service and prodding from one no-nonsense bankruptcy judge — that’s what it took for owners of the 401(k) plan sponsored by Penn Specialty Chemicals to gain access to their money last month.
Finally,
these 401(k) holders have been released from the limbo where they’d
been trapped since their company filed for bankruptcy in December 2008.
While
such fiascos don’t occur everyday, the Penn Specialty Chemicals 401(k)
case shows what can happen to account holders if their company
collapses. It’s not a pretty picture.
When
a company goes bankrupt, the assets of its 401(k) are supposed to be
transferred to account holders promptly. But that didn’t happen here.
After
the bankruptcy filing by Penn Specialty, a chemicals maker based in
Memphis, its 401(k) holders were not only frozen out of their funds for
five years, but were also charged significant fees for administrative
and legal work during that time. Some of the participants even faced tax
penalties because they couldn’t withdraw some of their money at age 70
1/2, as tax law requires.
George
L. Miller, a certified public accountant at Miller Coffey Tate in
Philadelphia, was appointed trustee by the bankruptcy court to oversee
the Penn Specialty 401(k). For years, he told plan participants that the
I.R.S. had not issued a so-called determination letter that would have
allowed the plan’s assets to be distributed.
But
it wasn’t clear why the I.R.S. would object. The I.R.S. manual notes
that bankruptcy is usually enough evidence to support a plan’s
termination and payout.
Fees
for administration of the 401(k), meanwhile, piled up. During 2009 and
2010, for example, fees of $111,463 were charged, or 2.8 percent of the
plan’s roughly $4 million in employee assets.
The
fees went to the overseers of the plan — Mr. Miller and a consulting
firm in Melville, N.Y., called the Comprehensive Consulting Group. But
in 2011, Vanguard, the plan’s record keeper, stopped paying the
overseers after receiving what it said were unsatisfactory answers to
questions it had asked about the delays in paying out participants.
Calls to Mr. Miller and to the Comprehensive Consulting Group last week were not returned.
Shankar Iyer, 72, was principal scientist at Penn A Kem,
a European chemicals company that acquired some of the operations of
Penn Specialty before it folded. After a year of waiting to get at his retirement
account, Mr. Iyer began asking the trustee, the I.R.S. and the Labor
Department what was taking so long. He took up the fight to unlock the
401(k) for himself and for the roughly 40 other participants in the
plan.
In
2012, the Labor Department opened an investigation into the case. This
seemed to annoy Mr. Miller, who Mr. Iyer said told him that involving
Labor Department officials would result in an even longer wait and
additional costs for plan participants.
Mr.
Iyer, who has glaucoma and diabetes, retired last fall. He said he
continued working far longer than planned because he could not withdraw
any of his retirement savings — 41 years’ worth that he had earned at a
variety of companies but had rolled over into his Penn Specialty
account. He was also upset by the $49,728 in administrative and legal
fees extracted from his account while it was in limbo. Those fees ranged
from 1.5 percent to 3.75 percent of his account’s balance when they
were charged.
On
Jan. 24, 2013, the I.R.S. sent a determination letter to Comprehensive
Consulting, stating that the plan’s assets could be distributed to
participants.
Even
that did not end Mr. Iyer’s battle. When he telephoned Comprehensive
Consulting to ask for his money, he said, he was told that it had not
received the letter, which an official at the I.R.S. confirmed it had
sent.
Finally,
last August, an exasperated Mr. Iyer wrote a letter seeking help from
Brendan Linehan Shannon, the federal bankruptcy judge in the district of
Delaware who oversaw the Penn Specialty bankruptcy years earlier. On
Sept. 5, the judge called Mr. Miller and other interested parties to a
hearing in his chambers 11 days later. A lawyer for the Labor Department
attended; Mr. Iyer was patched in by telephone from Tennessee. Two
lawyers representing Mr. Miller, the trustee, were also there; they said
the delay was the fault of the Labor Department. The judge directed the
trustee to resolve the matter within two months.
That
deadline passed with no payout. On Nov. 26, Mr. Iyer advised the judge,
who ordered Mr. Miller’s lawyer to resolve the case within a week.
In
early December, Mr. Iyer and all the plan participants finally received
word that the money was on its way. After five years, one month and 11
days, Mr. Iyer’s funds were released in mid-January.
“I
got most of my money but I lost quite a bit,” Mr. Iyer said. “It is
interesting to note that the fees I ended up paying exceed what Penn
Specialty Chemicals contributed on my account. I have learned never to
trust a 401(k).”
Who
knows how long the Penn Specialty employees might have had to wait,
were it not for the help of Judge Shannon and two federal agencies? And
who knows how much the participants would have paid if Vanguard had not
intervened on their behalf?
We
do know, from Jason Surbey, a spokesman at the Labor Department, that
the fees charged to the plan would have been larger had it not pushed
the trustee to reduce what he sought to charge the plan.
Americans
increasingly must rely on 401(k) plans to support themselves when they
have finished their working lives. You can’t help wondering: Is this any
way to run a retirement system?
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