Help, my work is threatning to stop my 401K contributions, I believe this is illegal!

[cattthy]

I've had the same 401K for about 5 years at a small company, and always contributed.

 

Today HR comes in with a form from the 401K guy that she says is "mandatory" by federal law (supposedly a new law) and that if we don't fill it out our contributions will be stopped.

 

The form asks for personal financial details such as net worth, amount of money you have in ALL investments outside the company, and other sensitive information including DL # and amount of money you have avaliable to invest.

 

I am so angry, but my HR dept is not the brightest. So what I did is write a nice note on the form, to the 401K guy, telling him I used to be a licensed stockbroker (this is true, I was years ago) and that I would not be filling it out because it is not Federal law for me to divulge my personal finances, just to participate in a work 401K plan.

 

I sealed the envelope and gave it back to HR to give to the guy when he comes in tomorrow, since I will be working and not see him to give it to him.

 

My guess is that the 401K guy told HR that this form is required by law, in order to get employees to fill it out so he will have sales lead information. Also it's my guess that HR has no idea it's not a federal law, and she believes him. There is no one in my company, not my boss, not HR, who has much financial sense so if I tried to argue to them that it's wrong, they would just trust the sleazy financal guy over me.

 

In other words, if I were to protest with HR, I know the lady would just basically say I'm wrong and that I have to fill it out.

 

This way she thinks I filled it out, because it's in the sealed envelope which she will give to the guy.

 

If for some reason the 401K guy says something, like to stop my contributions (which have a 3% match) because I didn't fill out the form, what recourse do I have?

 

Another employee already had his 401K contributions stopped because he refused to fill out the form two months ago when they gave it to him (he was a new employee).

 

I could report them to the SEC I suppose but in the meantime I'm losing money if my company is not contributing.

 

Has anyone ever heard of a similar situation?

[Kevin20]

I'd agree that such info would surely not be required for a 401k, and so this is some sort of scam or stupid marketing ploy.

 

You're not clear as to whether you know who the financial sales rep is. If not, find out who he is and his branch's phone number, address, branch manager or VP, and compliance officer.

 

Now, first as a matter of expediency, personally I'd fill out the form that's demanded but simply lie in every entry, show you're the destitute loser who has $3 in every bank account. Or you're a billionaire. Whatever. Not everyday you get to do that.

 

Then, write both of the branch manager and compliance officer letters angrily complaining about the situation and threaten to complain to FINRA, and demand an explanation in writing. Demand they show you what federal law requires such information to be collected in order to participate in a 401k plan.

 

Depending on how nice and patient you are, you can wait for replies, or proceed...

 

Then, go to FINRA.org and research how to formally file a complaint, and do that. Go here:

http://www.finra.org/Investors/ProtectYourself/p118628

 

Then, get every co-worker you can to repeat exactly the same thing.

Edited June 3, 2009 by Kevin20

[cattthy]

Thank you that was very helpful

[squirrelgirl]

I remember when I was first eligible for our 401K that the firm handling our investments wanted similar information. I simply excluded what I thought was none of their business....

[bostonte]

What is the money within your 401K invested in?

 

Certain products are only supposed to be offered to "high net worth" individuals who, in theory, can afford a loss and/or a financial advisor to ensure they know what they're doing.

 

If you happen to have a product within your 401k that's flagged as one of these offerings, that's the only reason I could see why they would have to stop contributions (i.e. can't sell it to you until you satisfy their underwriter you're within the guidelines).

 

Otherwise, it's probably just a case of send the form to everyone and then we have it if we need it in the future. I get them once a year from one of my brokerage accounts, despite holdings where it's completely unnecessary. When I asked they said they send them up once a year and just keep in on file in case it's needed.

 

If you aren't comfortable providing the information, I would leave it blank and submit the signed form. Many times it's merely a requirement of getting the form back, not actually getting the information (i.e. if you don't fill it out they will not put you in the high net worth group, and otherwise not really care -- but if they never get the form back it's not "settled" on their underwriting where you place)

[Uncle Leo]

There should be a law...

 

...that says you can only cite "the law" if it really is the law, lest that person or organization be subject to penalties of their own.

[hurricanesfans27]

I have no problem giving them that info at all. UNLESS they threaten to do what you just said they were threatening then I wouldnt give them anything just to lemonade them off.

[frank22]

I have no problem giving them that info at all. UNLESS they threaten to do what you just said they were threatening then I wouldnt give them anything just to lemonade them off.

 

 

This leads me to question the 401K company in general. Look at the fees they charge and the types of funds they have, are there large loads or high expenses? A lot of these companies rip-offs with few choices and funds that have large loads. Do they have index funds as options?

 

 

If you find out what they tried to pull was wrong and they have high fees and/or few fund choices perhaps you could use that as an opening to get your company to look for a different provider.

Edited June 8, 2009 by frank22

[E Jacobs]

The form asks for personal financial details such as net worth, amount of money you have in ALL investments outside the company, and other sensitive information including DL # and amount of money you have avaliable to invest.

 

That sounds like a pretty standard "Know your customer" form. They're probably preemptively reacting to the proposed changes in FINRA rules. Given the current financial markets, it seems pretty inevitable that the eventual FINRA rule will require all customers to be "known" and they're just trying to get a head start on compliance. After all - lots of people are discovering "investments may lose value" is more accurate than they expected.

 

Many things can get garbled in the transition from broker who was told something by compliance to HR who doesn't know what anything is, to employee. I'd just get the number for compliance or the broker and say "WTF is this, and why should I fill it out?" They should be happy to tell you.

[KYBOSH]

All I would have done is asked HR and the Investment guy to show me the law where it says I had to do it.

When they couldn't (and they cant/wont) I would put them on notice that their actions are potentially criminal/illegal and definitely unprofessional and that I would be right to report them to the appropriate licensing boards, professional committees and/or law enforcement - consumer protection agencies.

[WBOTM]

cattthy, as E Jacobs posted, what you are describing are typical KYC forms to ascertain identity and suitability of investments for a customer/client. Perhaps the financial institution conducted an internal compliance review and is updating its records.

 

Below are links to the proposed changes from FINRA and a good summary of the current/proposed FINRA/NASD/NYSE rules:

 

FINRA Suitability and "Know Your Customer"

http://www.finra.org/web/groups/industry/@...ces/p118709.pdf

 

Bingham McCutchen LLP

http://www.bingham.com/Media.aspx?MediaID=8661

Edited June 11, 2009 by WBOTM

[cattthy]

Thanks everyone for your input. I spoke to the broker on the phone today and she says she is following FINRA guidelines. So I looked up FINRA and she is wrong, because FINRA excludes institutional investors. Here is a portion of the FINRA law:

 

Institutional Customers

 

The proposed rule includes an exemption for transactions or investment strategies involving securities recommended to institutional customers, subject to conditions. The proposal adopts the definition of institutional customer in NASD Conduct Rule 3110©(4) (including any entity with total assets over $50 million) rather than the inconsistent definition under current NASD IM-2310-3 (potentially any entity, but especially one with $10 million under management). The proposed rule prunes the meandering and often-criticized multi-factor guidance of IM 2310-3 into a more specific and definite test. A member firm has fulfilled its customer-specific suitability obligation to institutional customers if these factors are met:

 

The institutional customer has affirmatively indicated that it will forgo the protection of the customer-specific obligation of the suitability rule; and

The firm or associated person has a reasonable basis to believe that:

(a) The institutional customer is capable of analyzing the risks of investment, both in general and with respect to the specific investment or strategy at issue; and

( The institutional customer is in fact exercising independent judgment in evaluating the recommendations.

As to decisions made by a customer’s agent (such as an investment adviser or bank trust department), this evaluation is made with respect to the agent.

 

Now I am not a lawyer so I would appreciate any input if I am wrong. But I believe I have interpreted it correctly, that requiring personal info such as net worth is not required for retirement plans.

 

Any other intelligent comments would be appreciated! Thanks!

[cljohnr]

Thanks everyone for your input. I spoke to the broker on the phone today and she says she is following FINRA guidelines. So I looked up FINRA and she is wrong, because FINRA excludes institutional investors. Here is a portion of the FINRA law:

 

Institutional Customers

 

The proposed rule includes an exemption for transactions or investment strategies involving securities recommended to institutional customers, subject to conditions. The proposal adopts the definition of institutional customer in NASD Conduct Rule 3110©(4) (including any entity with total assets over $50 million) rather than the inconsistent definition under current NASD IM-2310-3 (potentially any entity, but especially one with $10 million under management). The proposed rule prunes the meandering and often-criticized multi-factor guidance of IM 2310-3 into a more specific and definite test. A member firm has fulfilled its customer-specific suitability obligation to institutional customers if these factors are met:

 

The institutional customer has affirmatively indicated that it will forgo the protection of the customer-specific obligation of the suitability rule; and

The firm or associated person has a reasonable basis to believe that:

(a) The institutional customer is capable of analyzing the risks of investment, both in general and with respect to the specific investment or strategy at issue; and

( The institutional customer is in fact exercising independent judgment in evaluating the recommendations.

As to decisions made by a customer’s agent (such as an investment adviser or bank trust department), this evaluation is made with respect to the agent.

 

Now I am not a lawyer so I would appreciate any input if I am wrong. But I believe I have interpreted it correctly, that requiring personal info such as net worth is not required for retirement plans.

 

Any other intelligent comments would be appreciated! Thanks!

I very much doubt that you qualify as an institutional customer. Here's the definition referenced above:

 

(4) For purposes of this Rule and Rule 2310 the term "institutional account" shall mean the account of:

 

(A) a bank, savings and loan association, insurance company, or registered investment company;

 

( an investment adviser registered either with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or agency or office performing like functions); or

 

© any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.

[cattthy]

Ok, now that is what was confusing. Because the company she works is not the same as the company that holds our retirement plan.

 

In other words, the name of our retirement plan is Alliance Bernstein. But she does not work for them. She works for ESI. She can sell us on any plan she chooses, Alliance Bernstein is the institutional investor she set up for our company.

 

All of us employees are invested with Alliance Bernstein.

 

I called them and they told me it is illegal what she is saying.

 

So since Alliance B. is institutional, then I believe I am correct.

 

What do you think??

Edited June 16, 2009 by cattthy

[Kevin20]

Ok, now that is what was confusing. Because the company she works is not the same as the company that holds our retirement plan.

 

In other words, the name of our retirement plan is Alliance Bernstein. But she does not work for them. She works for ESI. She can sell us on any plan she chooses, Alliance Bernstein is the institutional investor she set up for our company.

 

All of us employees are invested with Alliance Bernstein.

 

I called them and they told me it is illegal what she is saying.

 

So since Alliance B. is institutional, then I believe I am correct.

 

What do you think??

 

 

The institutional investor issue isn't productive, that's too lawyerly and pointless to bother with. But clearly these people are being overly aggressive in a kneejerk way in interpreting their FINRA compliance responsibilities. Nobody else with a 401k deals with this nonsense. Unless they are personal financial advisors giving you personal financial planning they certainly do not need all the info they are asking for.

 

So, in addition to filling out the forms but grandly lying, I would call them up and demand the personal financial advice that they seem to be suggesting the are obligated to provide you. Demand she come to your office and provide you an hour of custom tailored investment advice and portfolio management. If she'd not going to do that, why does she need all this personal information?

 

The reality is that neither she nor anyone else involved in setting up 401k plans pays the slightest attention to the personal investment needs of the individuals in the plan. It's a group plan. She has the one plan she sells to every corporate 401(k) client, and if she claims otherwise she is lying.

 

By the way I've never heard of ESI.

[cattthy]

ESI (Equity Services Incorp.) is the third party administrator.

 

My HR person admitted she knows nothing about what ESI is saying and is just doing what they said to do.

 

I just reported ESI and the broker to FINRA, thanks to the advice in this thread.

 

I don't know what else to do, other than wait and see.

 

Oh, and she is willing to come provide personal financial advice, if asked. But I do not want any advice from her. I invest outside my company on my own and am comfortable with my decisions. So even though she is willing to give advice, I don't want it and will not give her my personal net worth and other info.

 

On another issue, my HR person told me that she read the note I wrote on the form that was asking for net worth. The note just kindly said that I would not provide that information to them since it was not the law that I do so.

 

I had put it in a sealed envolope and asked her to give it to the broker who was asking for the info.

 

Today the HR person and VP (manager) told me they read the note!

 

So if it is so confidential like the ESI broker claims, why did my HR and manager read it?!!

 

The form that asks for the personal info also has a lot of fine print including agreeing to arbitration in case of a dispute, and agreeing that the broker can share your info with other parties if they have a need to know.

Edited June 17, 2009 by cattthy

[athensgaguy]

They could only stop your match if they stopped everyone's match. They have to meet non-discrimination rules.

[pjohnston]

Being asked to prove your IDentity is one thing - Know Your Client is taken pretty seriously these days.

Agreeing to provide your financial information is another thing entirely. Better than to lie on the forms (I wouldn't recommend that) you should be able to simply put DECLINED next the financial information.

 

A financial representative may not be allowed to provide ADVICE w/o sufficient financial info - makes sense because, as WBOTM mentioned, s/he wouldnt know the investor's suitability for a particular investment. But that shouldn't stop the account from being opened and serviced/contributed to.

 

What is going on with your HR person? She opened the envelope? Wow.

As to your colleague whose contributions were stopped, is it possible that he refused to provide sufficient IDentification information - as opposed to financial information? I would be really really surprised if he was no longer allowed to contribute because he declined to provide his financial situation. But, then again, I'm already really suprised by how poorly your HR dept and the financial rep have handled this situation so far.

Edited June 27, 2009 by pjohnston

[GEORGE]

I've had the same 401K for about 5 years at a small company, and always contributed.

 

Today HR comes in with a form from the 401K guy that she says is "mandatory" by federal law (supposedly a new law) and that if we don't fill it out our contributions will be stopped.

 

The form asks for personal financial details such as net worth, amount of money you have in ALL investments outside the company, and other sensitive information including DL # and amount of money you have avaliable to invest.

 

I am so angry, but my HR dept is not the brightest. So what I did is write a nice note on the form, to the 401K guy, telling him I used to be a licensed stockbroker (this is true, I was years ago) and that I would not be filling it out because it is not Federal law for me to divulge my personal finances, just to participate in a work 401K plan.

 

I sealed the envelope and gave it back to HR to give to the guy when he comes in tomorrow, since I will be working and not see him to give it to him.

 

My guess is that the 401K guy told HR that this form is required by law, in order to get employees to fill it out so he will have sales lead information. Also it's my guess that HR has no idea it's not a federal law, and she believes him. There is no one in my company, not my boss, not HR, who has much financial sense so if I tried to argue to them that it's wrong, they would just trust the sleazy financal guy over me.

 

In other words, if I were to protest with HR, I know the lady would just basically say I'm wrong and that I have to fill it out.

 

This way she thinks I filled it out, because it's in the sealed envelope which she will give to the guy.

 

If for some reason the 401K guy says something, like to stop my contributions (which have a 3% match) because I didn't fill out the form, what recourse do I have?

 

Another employee already had his 401K contributions stopped because he refused to fill out the form two months ago when they gave it to him (he was a new employee).

 

I could report them to the SEC I suppose but in the meantime I'm losing money if my company is not contributing.

 

Has anyone ever heard of a similar situation?

It doesn't pass the SMELL TEST

 

I call BS big time on that one

 

Show me the law

Edited June 28, 2009 by GEORGE

[GEORGE]

ESI (Equity Services Incorp.) is the third party administrator.

 

My HR person admitted she knows nothing about what ESI is saying and is just doing what they said to do.

 

I just reported ESI and the broker to FINRA, thanks to the advice in this thread.

 

I don't know what else to do, other than wait and see.

 

Oh, and she is willing to come provide personal financial advice, if asked. But I do not want any advice from her. I invest outside my company on my own and am comfortable with my decisions. So even though she is willing to give advice, I don't want it and will not give her my personal net worth and other info.

 

On another issue, my HR person told me that she read the note I wrote on the form that was asking for net worth. The note just kindly said that I would not provide that information to them since it was not the law that I do so.

 

I had put it in a sealed envolope and asked her to give it to the broker who was asking for the info.

 

Today the HR person and VP (manager) told me they read the note!

 

So if it is so confidential like the ESI broker claims, why did my HR and manager read it?!!

 

The form that asks for the personal info also has a lot of fine print including agreeing to arbitration in case of a dispute, and agreeing that the broker can share your info with other parties if they have a need to know.

ONE WAY STREET???

 

No opt-out???

[WBOTM]

Show me the law

It is not always the law.

 

These are rules and regulations promulgated by FINRA/NASD/NYSE:

 

FINRA Suitability and "Know Your Customer"

http://www.finra.org/web/groups/industry/@...ces/p118709.pdf

[GEORGE]

Is this MORE over-reaction CRAP like a bank pulling a credit report for a checking/savings/CD when all they had to do is look at the DRIVER'S LICENSE and the FACE SITTING IN THE CHAIR IN FRONT OF THEM compare...

 

They solved the question "KNOW YOUR CUSTOMER" with-out pulling any hard inquires

 

THE FOOLS PARTIOT ACT OVER-REACTION

 

"KNOW YOUR CUSTOMER" not "PULL A CREDIT REPORT TO SEE THEIR FACE MAGICALLY APPEAR ON THE CREDIT REPORT"

[WBOTM]

GEORGE, did you bother to read any of the rules?

 

It is not just about KYC. It is also about suitability of investments.

 

These rules and forms can benefit investors by providing a paper trail, particularly if an advisor puts the client's money in inappropriate investment funds. For example, the client selects preservation of capital instead of speculative investments, but the advisor puts the client in "high risk" speculative investment funds anyway. The paper trail can provide support for claims against the advisor and investment firm.

[GEORGE]

I've had the same 401K for about 5 years at a small company, and always contributed.

 

Today HR comes in with a form from the 401K guy that she says is "mandatory" by federal law (supposedly a new law) and that if we don't fill it out our contributions will be stopped.

 

The form asks for personal financial details such as net worth, amount of money you have in ALL investments outside the company, and other sensitive information including DL # and amount of money you have avaliable to invest.

 

I am so angry, but my HR dept is not the brightest. So what I did is write a nice note on the form, to the 401K guy, telling him I used to be a licensed stockbroker (this is true, I was years ago) and that I would not be filling it out because it is not Federal law for me to divulge my personal finances, just to participate in a work 401K plan.

 

I sealed the envelope and gave it back to HR to give to the guy when he comes in tomorrow, since I will be working and not see him to give it to him.

 

My guess is that the 401K guy told HR that this form is required by law, in order to get employees to fill it out so he will have sales lead information. Also it's my guess that HR has no idea it's not a federal law, and she believes him. There is no one in my company, not my boss, not HR, who has much financial sense so if I tried to argue to them that it's wrong, they would just trust the sleazy financal guy over me.

 

In other words, if I were to protest with HR, I know the lady would just basically say I'm wrong and that I have to fill it out.

 

This way she thinks I filled it out, because it's in the sealed envelope which she will give to the guy.

 

If for some reason the 401K guy says something, like to stop my contributions (which have a 3% match) because I didn't fill out the form, what recourse do I have?

 

Another employee already had his 401K contributions stopped because he refused to fill out the form two months ago when they gave it to him (he was a new employee).

 

I could report them to the SEC I suppose but in the meantime I'm losing money if my company is not contributing.

 

Has anyone ever heard of a similar situation?

ANY UP-DATE???

 

Did you lose the 401k

 

[Pam]

GEORGE, did you bother to read any of the rules?

 

This, seriously, is the funniest question I've read in weeks.