401k fund lineup is changing?

Question

My company is changing the fund lineup. Some of the choices that are there today will be gone tomorrow. They are deleting a fund that I am invested in and they told me they are “Transferring” my money from one fund to a different fund. It surprises me that they can do this with my money. Is this legal?

How are you supposed to invest in funds if the company can delete them at any time?

Answer 1

I am on my company's oversight committee.  I can't tell you about your 401(k) management (other than that it is strictly regulated by federal law & auditing) , but let me tell you how our committee does things.

I have pushed for changes in funds and for new (better) ways of structuring the fund offerings to the employees because what they had WASN'T VERY GOOD.  Are the funds you are getting better than the ones you had before?  Do you know how to tell?

Yes, we can delete funds, change them, and replace them at any time as long as we follow certain general rules.  

I am the employee representative on the committee, so I hear all the grips people have about the 401(k).  Most of them aren't very smart or money wise:  this isn't a bad thing -- I'm here to help educate people -- but it is a fact.

Why do you want to keep the fund you have?  Which fund is it? What are they replacing it with?  They should have sent you an explaination of what they are doing and why.  We always do.  We don't give details, but we tell the truth.

Answer 2

Trustees of the plan will not take this decision lightly.  They have fiduciary liability, which means that they are financially liable if they make an imprudent or unjustifiable decisions.  There is also a lot of work involved in making such a change.  They are not likely to decide to make a changes if the fund is performing to some reasonable measure, only if there is a really good reason.  

It is legal, and they are responsible to provide a prudent line up of mutual fund in the plan.  To your last question "How are you supposed to invest in funds if the company can delete them at any time" are you telling me that you have never and will never change investments as time goes on?  Things will change in your plan and you will just have to deal with it, the benefits of a 401k outweigh minor things like fund changes.

Answer 3

They can within certain limits.  You should be notified ahead of time and given the opportunity to redirect into the new funds of your choice.