Legal Question in Investment Law in California

Re: employer sponsored 401(k) plans

401(k) plans must comply with IRS requirements in order to have the intended tax-deferral effects. Beyond that, they are at least theoretically pretty much free-form for the employer to design and the employee to agree upon.

Having said that, I would continue by saying that the employer-employee agreement for a particular 401(k) plan normally follows rather strict and conservative guidelines, under which the employer or the 401(k) management firm retained by the employer would NOT be given such broad authority.

Specifically, I think:

(1) Moving a participating employee's funds into an annuity would usually not be permissible;

(2) Changing record-keepers would probably be permissible, so long as the successor "recordkeeper" or manager was well-qualified; and

(3) Moving employee funds from one type of investment to another would usually be in excess of the 401(k) manager's, or the employer's, authority under the terms of most conventional plans. Excpetions are possible, but read the plan terms as set forth to you when you signed up.

Most employers would shy away from taking investment decision power too far out of the individual employee's hands because of the liability they would incur for any decision that turned out badly, no matter how brilliant it seemed at the time made.

So, for #1 and #3, I would say usually not normal, but possibly legal, but only if the particular plan agreement gave this power. Most would not. As to #2, this seems less of a problem.