Did I lose money when rolling over my wife's 401(k) due to the time it took the money to transfer between accounts?
My wife and I are consolidating investments. We rolled over her 401(k) investments (about $400,000) at one financial institution to another. It took 10 business days for the funds to transfer. At the original institution, the funds showed a balance of $0.00 on May 3, and the new institution didn't show an increase in balance until May 17. Is it unusual for a rollover to take this long? Is this the legal, standard time? I feel that I lost close to $500 in this process due to the money not being in an account while it was being rolled over.
This is a frustration for all involved. Some firms can do electronic transfers of positions and the investments are moved within a day or two. Since this is coming from a 401(k) plan they probably sent a physicial check. It's frustrating, but could have been worse. 401(k) plans, especially those at insurance companies, are slow to adapt new technology to move this process along.
You have a legitimate question and concern with regards to the process of transferring retirement money. The process of rolling over assets is one in which the “contra firm” holds on for as long as possible to the assets, meaning your retirement plan custodian in this case. Yes, this is legal and a standard for the time it takes in transfers or rolling over money.
Here are a few things to consider on what happens when rolling over money. The contra firms requires the paperwork to be in good order to execute the transfer. You might have had to provide “wet signatures” in the paperwork to transfer the money. So this takes time to receive and review, then process. Also, the way in which the transfer is request could dictate the ease, such as transfer “in kind” or “liquidate” when sending the assets. The funds could be wired, but that comes at a cost to do so versus regular mail (snail mail). Then comes in the factor of when the investments were sold, was the market down or up? The contra firm will sell the investments at end of trading day and take the NAV for the mutual funds value that day, based on the request to close the account. Then comes the buy side, when the money is transferred at what price are the investments being bought at, again is the market down or up. If you did this on your own, you might not have understood the best methods to rollover the money in a way to be the most effective. Not sure if you worked with an advisor, but they should have at least done an evaluation and provide disclosures in the differences of accounts and expectations.
Lastly, not sure if anything would have changed if you had left the money with the retirement plan, meaning you might still be down $500. You could easily assess by taking the number of shares in the funds that you had before the transfer and compare the value on the date when the new account funded. It is understandable that you and wife worked hard for this money and are concerned that is managed in the best manner possible. I hope this information helps you and be confident that at least now you have control over the assets and have many investment options.
I mean it is certainly possible the markets were up in that 10 day time period. It certainly isn't unreasonable for it to take that long to liquidate, settle, transfer, settle, purchase new investments and have them settle. You could have easily benefited from those 10 days almost as easily as it could have "hurt" you. So to answer your question I wouldn't lose any sleep over it as this is typical operating procedure. Even when your company withholds your 401(k) contributions on a Friday usually it takes time for it to show up in your 401(k) account. If the $500 potential gain or loss makes or breaks your financial plan at the end of the day I think there are bigger issues going on to be honest. Hope this helped you understand the process a little clearer.
The fact that you are consolidating your accounts will benefit you in the long run. Your finances will be more manageable.
Sometimes you can lose a battle on the way to winning the war. From May 3 to May 17, stocks (S&P 500) moved up 3.6% adjusted for dividends. Bonds (total bond market) were down about 0.8% during that period. So, depending on your allocation, you may have lost some potential earnings.
Why it took so long might be a function of the incoming firm's policies. Do they have a 5-Day hold on incoming checks? Was this an electronic transfer that was missing some information? Was there a delay in the mail? Did this sit on someone's desk? There are many possible reasons this transfer took so long. However, since it is not possible to change the outcome (unless you can prove there was wrongdoing), it might be best to look at it as a cost of doing business.
In any case, you are better off with your investments consolidated into fewer accounts.
Look who you are dealing with. You are literally taking money out of the pockets of a major financial institution when you rollover a 401k. They are not going to pull out the stops to help you do that. I have found institutions to be often deliberately obstructive when you roll funds out of them, coupled with extremely low quality customer service reps.
Ten days is not bad at all in my experience.
And don't consider the $500 a "loss" and more than you should consider a $500 windfall a "gain" if markets had moved differently during the 10 days.