If your employer has delayed your 401(k) distributions, there may be a legitimate explanation, but the company is required to let you know why in writing. But before you do that, it's crucial to have a good understanding of how your plan works.
Read 401(k) Plan Documents
A good place to start to understand why your distributions may have been delayed is to read the materials that spell out the provisions of your plan. Your employer or the plan administrator should have provided you with a copy of the 401(k)'s summary plan description (SPD). If you can't find your copy, contact your employer and ask for a replacement.
- Employers are required to provide participants in a 401(k) with a summary plan description, which outlines the terms of the plan.
- You can ask your employer to provide an explanation for delaying your distribution; companies are required to do so in writing.
- There may be legitimate reasons why 401(k) payments are delayed, such as your eligibility.
- If you believe your employer is not complying with the provisions of the plan, contact the Department of Labor (DOL).
A copy of the plan's SPD may also be obtained from the DOL by writing to:
- The Department of Labor, EBSA, Public Disclosure Room, Room N-1513, 200 Constitution Avenue, N.W., Washington, D.C. 20210
They may charge you copying fees, which are usually a minimal amount. You can also visit the Employee Benefits Security Administration’s website and go to Ask EBSA.
The SPD is required to include an explanation—in non-technical terms—of the plan provisions, such as your benefits and rights under the plan, including when you are eligible to receive distributions.
The Employee Retirement Income Security Act (ERISA) requires plan administrators to provide participants with an SPD.
When an employer makes changes to a 401(k), regulations mandate that it must notify all participants in writing by giving them a revised SPD or a summary of the modifications and how they affect the plan.
Ask for an Explanation
Alternatively, you may ask your employer to provide an explanation for refusing to honor your request for a withdrawal. In fact, you must be given an explanation in writing.
If you feel your employer is not complying with the terms of the plan, you may contact the DOL toll-free at 1-866-444-3272 and ask to speak with a regional office representative near you, or you may contact your regional office.
Federal law requires plan administrators to clearly state the requirements of a 401(k) plan in writing, and to notify plan participants in writing of any changes. You can find out how to claim benefits, or to appeal a denial, in your summary plan description.
Legitimate Reasons for Delayed 401(k) Distributions
There are legitimate explanations for why distributions could be delayed, which is why it is important to read the plan's SPD. The reasons may include the following.
You may not be eligible yet to receive distributions. For instance, the plan may require that participants reach a certain age before they are considered eligible to receive a distribution. This age requirement can apply even if you are no longer employed with the company.
2. Payment Frequency
The plan may make payments only at a certain frequency, such as quarterly. If you requested a distribution in mid-January, then you may need to wait until March 31 before you receive the requested amount.
If your claim is denied, you can file an appeal. Federal law gives plan administrators 60 days to respond to an appeal in writing.
The Bottom Line
There are many reasons why an employer might delay 401(k) distributions, and these reasons can usually be found in your plan summary. Luckily, retirement plans are strictly regulated. If it is not clear why your distribution was delayed, the law requires plan administrators to respond in writing–and to address any appeals within a reasonable time frame.
How Do 401(k) Distributions Work?
When you turn 59½, you can take distributions at any size or frequency that you like. You can even take it all out at once, but large distributions will increase your tax bill. Many people like to leave their money in their 401(k) and let it keep growing. However, you must start taking required minimum distributions (RMDs) by April 1 of the year after you turn 72. In many cases, you can delay these distributions if you are still working.
When Can You Take Distributions from a 401(k)?
You can take distributions from a 401(k) at any time, but you will face steep penalties if you withdraw before age 59 ½. After that, you can start taking money out as often or as rarely as you want, but the IRS requires you to start taking distributions by the year you turn 72. Many plans allow you to postpone these required minimum distributions if you are still working.
How Long Can an Employer Hold a 401(k) Distribution?
The administrator of a 401(k) has 90 days to respond to a claim for benefits, and they can take an additional 90 days as long as they inform you of the delay in writing. If your claim is denied, they must send a written explanation in plain language about why the distribution has been withheld.
When Is Spousal Consent Required for 401(k) Distributions?
Spousal consent is required before a person can name someone besides their spouse as the beneficiary of their 401(k) plan. This is because the spouse has a financial interest in their partner's retirement savings, and they are viewed as a marital asset.