Legal Question in Employment Law in Pennsylvania

on disability and employer wants to cancel 401(K)

I'm disabled due to having a stroke in 2002. I was working at the time of the stroke for a Company based in Canada and located in PA. I had worked there for 10 years. After the stroke I couldn't work and received long term disability

insurance from my job and also got Social Security. I have a 401(k) plan with the company. It is vested and the amount is approximately $2500.00. I received a letter from the company holding the plan that said vested benefits less than $5000.00 will be paid to me or set up in an IRA because I'm a terminated employee. When you go on a company paid disability plan, are you considered a terminated employee? I haven't added anything to the 401(k) because money is tight, but my account gained almost $500.00 from dividends paid on the stock I have. I don't want to have it moved if I don't have to. Thank you


Asked on 11/17/06, 7:58 am

1 Answer from Attorneys
Roger Traversa Arjont Group (Law Office of Roger Traversa)

Re: on disability and employer wants to cancel 401(K)

You asked about rolling-over a 401K.

Employees on long0term or permanent disability for most purposes are considered terminated. The company has the right to limit the participants in company sponsored plans to active employees or person with sufficient balances. The plans have a cost and many companies choose to use $5,000 as a limit for active terminated participants. That happens to be an amount where it does not cost the company "out of pocket" to actually maintain the account in most plans.

Don't fear. You can easily set up an IRA through any retail brokerage or other financial institution and roll the money over, including the increase from the investments. You should investigate a number of companies and roll the money over to such an account that you feel comfortable with. Check with your local bank or with some of the online providers.

Use a little caution and good sense and go with a stable company that has low fees. For information more on rolling-over a 401K look at some of the many financial advice sites. MotleyFool.com is a very good starting place among many.

Just remember, do not use the roll-over funds as cash. It is best if you set up the account and have the roll-over check made payable directly to the new account. If you take too long, or take the funds as cash you will not only have to pay taxes on the funds but also will likely have to pay a penalty to the IRS for early withdrawal.

Regards,

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Answered on 11/17/06, 10:38 am


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