If you’ve held a deferred compensation plan, such as a 401(k), with a previous employer and are wondering whether you should consolidate your funds, here are five reasons why you should consider it.
You can’t contribute more funds to a previous employer’s sponsored plan.
While you might have a good chunk of money invested in your old plan, once you leave an employer, your ability to make monthly deposits is gone. If you want to continue growing your investments, transferring those funds to a new deferred compensation plan with the State of California Savings Plus program for state workers or with the CalPERS 457 plan for qualified public agencies might be the better route. Otherwise your chances of seeing any significant growth could take years.
If you weren’t fully vested by your previous employer, a percentage of your plan will go back to them.
Depending on if vesting was available to you, how long the vesting period was and how long you were with your previous employer, you might owe them some funds from your current plan. If you were not fully vested before you left, you don’t have full ownership of your deferred compensation plan balance. You only own the amount that represents your own contributions to the plan, as well as any amount of employer matching contributions that have been vested.
Keep in mind that the longer you wait to consolidate funds, the more the money in your plan will grow and so will the amount that you’ll be paying to your old employer. Typically, previous employers will deduct their funds five years after separation.
Your previous employer has the power to move your money to different financial institutions.
Your former employer has control over where your plan resides, which means they can transfer the funds to a different financial institution at any time. Before the move occurs, you should be notified by either your previous employer or the institution where your plan was originally established.
If you receive this type of notification, you should act quickly and move your funds to a new deferred compensation plan that you control. Once your plan is moved to a new financial institution of your previous employer’s choosing, that institution may take a cut of your funds for processing fees or annual fund expenses.
Even if your plan doesn’t move, you may still be paying unnecessary fees.
Keep in mind that even if your plan doesn’t move, you still might be taking on some added fees since you are no longer with your previous employer. Always assess the annual or monthly fees that are being taken from your old plan and see if you could be saving money by moving funds to your new plan.
All your money can be easily managed in one place.
Remembering logins and watching over many different deferred compensation plans is a lot to keep track of! Many people find that having all their savings in one place makes for an easier investing experience. Plus, when you reach retirement age and start withdrawing funds, doing so from multiple accounts can get confusing. Consolidating can simplify both your withdrawals and tax bookkeeping.
Ready to make the merge?
If you’re a state worker follow these steps:
- Submit the Savings Plus Rollover-In Form (PDF) by mail or you may call them at 1-855-616-4776 to submit the form electronically. This way they’re aware funds will be coming their way.
- Make a phone call to the financial institution where your plan is being managed and let them know that you would like to rollover your funds. Reference the Rollover-In Form’s Box 5 for information you’ll need. Make sure you also have your plan name and plan number handy.
- The financial institution will either mail the check directly to your new plan, or they might mail the check to you to forward it along to your new plan.
- If a check is mailed directly to your new plan, keep an eye out for the funds to hit your account. Keep in mind that this could take several weeks.
To learn more about the Savings Plus program visit the Savings Plus website.
If you’re part of a qualified public agency, follow these steps:
- Download the Participant Enrollment Kit (PDF) and, if you are new to the plan, fill out pages 15-21. If you are already enrolled, complete pages 18-19.
- For new enrollments, provide the forms to your employer’s HR/Benefits department.
- For existing participants, mail the form to the address in Box 3 of the Rollover Contribution Form or contact your local representative at 1-888-713-8244 for assistance.
- Make a phone call to the financial institution where your plan is being managed and let them know that you would like to rollover your funds. Reference the Enrollment Kit’s Rollover Contribution Form Box 3 for information you’ll need. Make sure you also have your plan name and plan number handy.
For more information on the CalPERS 457 plan, visit www.calpers457.com. If you have any questions you may call the help line at 1-800-260-0659.