Laid-off Facebook and Google tech workers face another dilemma: what to do with pension funds

But there are various factors to consider whether someone should leave funds in their former employer’s 401(k) or transfer them to an IRA, Ms. Strand warned, as each situation is unique.

“I don’t think a general rule of thumb applies here,” she added.

Overall, John Chambers, managing director of the Seattle-based Newport Beach, California-based SageView Advisory Group, which advises on more than $150 billion in pension assets, said in an email that laid-off Microsoft employees have the option to leave their jobs. plans in the company or carry-over balances in an IRA or another employer’s pension plan.

“Taxable distributions are also an option but not recommended because taking money out of a retirement plan causes tax penalties and negatively impacts retirement planning,” he said.

Roger F. Vierra, Jr., Senior Institutional Consultant at The Vierra Group in Rockland, Massachusetts, noted that typically when workers leave, the action is considered a “distributable event,” meaning the employee has the option to opt out. , or transfer his or her balance to another qualified retirement car.

Vierra Group is a team of institutional advisors with approximately $2.1 billion in assets, advised by UBS Financial Services, itself a subsidiary of UBS AG.

“However, as long as an employee has a balance of $5,000 or more, they are allowed to keep their assets in the plan,” Mr. Vierra added. “In most cases, laid-off employees will no longer be allowed to contribute to their previous plan, but they still have control over how they invest in the plan’s investment menu.”

Whether a laid-off worker should keep their retirement savings in the company’s old plan or switch to a new one or an IRA is subjective and depends on individual preference, Mr. Chambers said.

“An investment in retirement plans is generally cheaper than an IRA and is overseen by the company, typically with the help of a professional plan advisor,” he said. “So, at least in general terms, investing in retirement plans tends to be cheaper and more efficient compared to the average IRA investment. Conversely, most pension plans offer a limited set of investment options, while IRAs offer a much broader set of investment options. A well-informed worker who knows how to effectively navigate IRA investment choices may be able to build a more customized retirement portfolio from an IRA than from their retirement plan. Personally, I don’t think there is a “best” or “worst” choice, just different variants”.

By law, if the balance exceeds $5,000, assets can remain in the plan, Mr. Chambers said. Companies cannot request to leave a pension plan before regular retirement age without the consent of the person receiving the benefits.

But Mr. Chambers noted that there is an exception for small balance distributions — typically amounts under $5,000, which increase to $7,000 with the passage of SECURE 2.0 pension legislation, but the higher limit is not yet applicable.

“So people who want to keep a balance in their previous employer’s pension plan usually have that option, unless the balances are low or people are past retirement age,” he said.

As of December 31, 2021, the Microsoft Savings Plus 401(k) plan includes approximately $48 billion in assets and nearly 149,000 employees, according to the latest Form 5500.

The Microsoft 401(k) plan offers a $0.50 match for every pre-tax or Roth dollar saved, up to the base IRS deferral limit. As stated on the company’s website, employee contributions, as well as Microsoft remuneration, are paid 100% from day one.

Microsoft and Google declined to comment.

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