401(K) Plan Sponsors And Participants Shocked When Unable To Withdraw Plan Assets

Between 2007 and 2010, some 401(k) plan sponsors and participants were shocked when they unable to withdraw their plan assets from certain 401(k) investment options, the Government Accountability Office (GAO) said in a report released on March 16. (GAO-11-291) They were restricted from withdrawing assets from real estate, money market, and stable value investment options. The restrictions also applied to investment options that involved lending plan assets to third parties in exchange for cash as collateral that a fund reinvests. “In most cases, the withdrawal restrictions were caused by losses and illiquidity in the investment options' underlying portfolios and sometimes contract constraints placed on plan sponsors by the investment options,” GAO said. “For stable value funds, and also for those investment options that lent securities, the withdrawal restrictions and their causes highlight the risks that participants face when allocating their 401(k) plan assets to these investment options—and that losses are borne by plan participants.” Participants also frequently do not understand or may receive insufficient disclosures of the risks posed by these investments. In addition, plan sponsors may be unaware or receive insufficient disclosures of the risks and challenges associated with those investment options and practices. As described by GAO, 401(k) plan sponsors are responsible for offering a variety of investment options, and participants are responsible for directing their investments among these options. Participants do this with the expectation they can change their investment or withdraw money from their accounts, GAO said. The report is available at http://www.gao.gov/new.items/d11291.pdf.