Some investors in 401k retirement funds who are moving to grab their money are finding they can't.
Even with recent gains in stocks, the months of market turmoil have delivered a blow to some 401k participants, freezing their investments in certain plans. In some cases, individual investors can't withdraw money from certain retirement-plan options. In other cases, employers are having trouble getting rid of risky investments in 401k plans.
When Ed Dursky was laid off from his job at a manufacturing company in March, he couldn't withdraw $40,000 from his 401k retirement account invested in the Principal U.S. Property Separate Account.
That fund, which invests directly in office buildings and other properties, had stopped allowing most investors to make withdrawals last fall as many of its holdings became hard to sell.
Now Dursky, of Ottumwa, Iowa, is looking for work and losing patience. All he wants, he said, is his money.
"I hate to be whiny, but it is my money," Dursky said.
Limited options at a hard time
The withdrawal restrictions are limiting investment options for plan participants and employers at a key time in the markets. The timing is inconvenient for workers such as Dursky who are laid off and find their savings inaccessible.Though 401k plans revolutionized the retirement savings landscape by putting investment decisions in the hands of individuals, the restrictions show that plan participants aren't always in the driver's seat.
More from MSN Money and The Wall Street Journal
Individual investors might not even be aware of some behind-the-scenes maneuvers causing liquidity problems in their retirement plans. Many funds offered in 401k plans lend their portfolio holdings to other investors, receiving in exchange collateral that they invest in normally safe, liquid holdings.
The aim is often to generate a small but relatively reliable return that can help offset fund expenses. But in recent months, many of the collateral investments have gone haywire, prompting money managers to restrict retirement plans' withdrawals from the lending funds.
Some stable-value funds also are blocking the exits. These funds, available only in tax-deferred savings plans such as 401k's, typically invest in bonds and use bank or insurance-company contracts to help smooth returns. But in cases of employer bankruptcy and other events that can cause withdrawals, these funds can lock up investor money for months at a time.
Losses expected, but lockups?
Investors in the Principal U.S. Property Separate Account said they understood the risk of losses but didn't think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven't been able to make any withdrawals or transfers since late September."To sell property at inappropriately low prices in order to generate cash for a few would hurt the majority of investors and violate our fiduciary obligations," said Terri Hale, a spokeswoman for Principal Financial Group (PFG, news, msgs), the fund's parent. The fund, which had $4.3 billion in net assets at the end of April, still is making distributions for death, disability, hardship and retirement at normal retirement age.
Video on MSN Money
The end of the 401k match?This is the time for workers to rebuild their decimated portfolios, MSN Money's Jim Jubak says. However, companies have started to cut the cash match on employee contributions. (March 12)
As of April 28, redemption requests that had yet to be honored totaled nearly $1.1 billion, or roughly 26% of the fund's net assets. Principal doesn't anticipate that it will make any distributions to investors who have requested redemptions until late 2009 or beyond, Hale said. Meanwhile, the fund continues to fall, declining 25% in the 12 months ending April 30.
Some investors have lost hope of recovering their money. Judith Sterner, a 69-year-old part-time nurse, had more than $12,000 in the fund when she tried to transfer that balance to a money market fund last fall. But her transfer was denied, and her stake has since declined to less than $10,000.
"This $12,000 represents a year of my retirement money that I don't have," said Sterner, of Morton Grove, Ill.
Continued: You can still get in, though
Rate this Article
High
