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Can my 401K be seized?

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  • Can my 401K be seized?

    I’m in a difficult situation currently which I’d love to get your feedback on. Essentially my company agreed to pay for my entire MBA, on the grounds that I continue to work for them for two years directly after graduation- If I violate this agreement, the penalty clause calls for me to repay the entire amount. I was originally supposed to graduate in May 2004, but in order to pursue a promotion abroad (in the UK) in April 2004 I delayed taking my final class until January 2005, which caused me to officially graduate in May 2005. The problem is, I absolutely despise living in the UK, and my company does not have offices in any of the countries I’d like to relocate to. I really hate living here, so after discussing the matter in depth with a lawyer friend of mine, I began seriously considering the possibility of breaking my MBA contract with my company and escaping earlier than originally planned. Considering this option involves a fastidious analysis of the probability of my company not only realizing I'll be breaking the contract, but also deciding to pursue me to seize the large sum of money I technically would owe them back (the entire cost of my MBA). By the way, the contract was written with the U.S. legal entity of my company, which I no longer work for; I was hired as a local employee in the UK entity of my company.

    My question is, if I leave early and thus "violate" the MBA contract, can my employer's U.S. branch actually seize my 401K balance in retribution? The MBA contract I have with them states that I would owe them back all the money they paid for the degree, but it doesn't stipulate exactly how that would be done.

    Many thanks for any insight you may have.

    Jay

  • #2
    No, because of its pre-tax status, your 401k is safe from seizure.

    This does NOT mean that you cannot be made to repay the money you agreed to repay; only that it cannot be done by requiring you to forfeit your 401k.
    The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.

    Comment


    • #3
      Thanks for your prompt response.

      One thing that alarmed me was that recently when I was inquiring about the ability to rollover my 401K into an IRA, I was told there was a "lock" placed on my account. I was horrified- I thought my worst fears had come true and they'd done that to hold me to the MBA contract.

      It turned out that they had put the lock on the 401K because when I left the U.S. last year, U.S. payroll had accidentally overpaid me around $1000 (gross) by miscalculating what day I left. Although I immediately wrote them a check for the overpaid amount last year, they had forgotten to take the lock off my 401K account (They have now removed it).

      If 401K is essentially immune from employers, why were they able to put a lock on my account for half of one lousy paycheck? They assumedly felt they could, if necessary, extract what they wanted in retribution had I refused to pay them back the excessive amount, and that worries me.

      Thanks

      Comment


      • #4
        I didn't say it was entirely immune from any action at all from employers; I said it couldn't be seized in the circumstances you described in your initial post. There's a difference.
        The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.

        Comment


        • #5
          Point taken, thanks. Would you care to elucidate the key distinctions between the two scenarios (from a legal perspective) which cause the different outcomes- now you've made me curious! From a very broad perspective, both scenarios involve me owing the company money, but is it because the non-MBA scenario involves payroll and a 401K contribution which essentially never should have happened?

          Thanks,

          Jay

          Comment


          • #6
            From a very broad perspective, both scenarios involve me owing the company money, but is it because the non-MBA scenario involves payroll and a 401K contribution which essentially never should have happened? Precisely. From a legal perspective, your 401(k) plan and any tuition repayment you owe the company are completely separate issues and must be handled as such. If, on the other hand, your 401(k) was accidentally overfunded due to a payroll error, that's an "apples and apples" issue and your employer can rectify the error in some appropriate manner. Since 401(k) monies only flow one way and usually are maintained in an irrevocable trust, I expect any adjustment due to the overpayment would involve considerable administrative work and have to be scrupulously calculated but you aren't entitled to excess funds in your account because of an error.

            Comment


            • #7
              Thanks Beth, you're an angel

              Two more questions, if you don't mind:

              1. Can you point me in the direction of a specific clause in 401K law which I could reference- either on this website or another?

              2. If my company figured out I was leaving a bit early, how do you think they'd react? In this kind of circumstance, will a company challenge you openly up front and give you a chance to back away from your new job and continue working there to satisfy the contract, or would they keep quiet and then suddenly send a nasty letter 6 months later saying "Hi, we're going to sue you immediately."

              Incidentally, if they did so, I assume the U.S. entity of the company would have to try to pursue me in Europe, seeing as I now reside here and the MBA contract is specifically with the company's U.S. entity, which I no longer even work for (I was hired as a local employee by the UK entity).

              Who knows, maybe I can come to an amicable agreement with them, as it was due to taking the role here that my graduation was delayed (and thus the contractual period extended). If it weren't for that, the period would already be ending in Spring 06, which is fine with me.

              Many thanks

              Comment


              • #8
                1. Can you point me in the direction of a specific clause in 401K law which I could reference- either on this website or another? Sorry but I can't. ERISA is a massive law and I'm far from expert on it. I'm just familiar with selected issues. You can always contact the federal Department of Labor for more detailed info: 202-693-4650.

                2. If my company figured out I was leaving a bit early, how do you think they'd react? In this kind of circumstance, will a company challenge you openly up front and give you a chance to back away from your new job and continue working there to satisfy the contract, or would they keep quiet and then suddenly send a nasty letter 6 months later saying "Hi, we're going to sue you immediately." Honestly, I don't have a clue. All that depends entirely on any number of issues which no one here can know. If they badly want to keep you or your leaving ticks them off, they could play hardball with you. Or if they, like you, realize that your present assignment just isn't a good fit, they could be relieved you're moving on and decide to look the other way.

                Since my crystal ball is in the shop, you're going to have to handle this the best way you see fit. All I can tell you is that in most situations, being forthright and honest with your employer is the way to go. Good luck.

                Comment


                • #9
                  Thanks Beth, you have been a big help.


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                  Comment


                  • #10
                    Valid Reasons for a Freeze on Your 401K

                    Hello,

                    I hope you don't mind me jumping in here; I used to work as a 401K Specialist for a large firm, so I can tell you this: There are few reasons that an employer can put a freeze on your 401K account. In your case, where the employer overfunded your 401K, that is a valid reason. Also, if you owe child support or are going through a divorce, they can freeze it, too. But, as far as them confiscating your 401K funds to repay your tuition--no way. That is not a legal or valid reason to freeze your assets. If they try to, they're breaking the law and you can pursue with legal action.

                    Comment


                    • #11
                      Thanks!

                      Sharpee I dare say your nickname is highly appropriate. Thanks very much indeed for that insight.

                      By the way, I used to live in Georgia (Sugar Hill, near Buford/Lake Lanier) prior to moving to The Third World (the UK). I've worked in Roswell, Alpharetta, and Atlanta itself. Hope you're enjoying the Georgia lifestyle- it can be quite comfortable indeed!

                      Comment


                      • #12
                        Not that it is right not to pay back your obligations, we all know how things change now a days, your employer would have to sue you in the area you currently live in, they cannot make you come back to the USA, after being laid off we found this out from bill collectors in other states not being worth coming to where we live.

                        Comment


                        • #13
                          Thanks Big Craig, and sorry to hear you got laid off. How is your jobsearch going?

                          That was actually one of the points my lawyer friend brought up- He thinks it very unlikely that the U.S. entity of my company would try to pursue me in another country due to all the hassle and cost.

                          Comment

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