Surprise! Here’s Your 401K Distribution

SURPRISE!  HERE’S YOUR 401K DISTRIBUTION
(one great way to annoy and piss off your customers)

by Celeste Jacroux (Guest Blogger)

Today I arrived home, got the mail and noticed an important-looking envelope from an investment house that rhymes with “Midelity”.  Generally, I don’t get interesting mail.  Most of it consists of direct mail, bills, and the cherished Title 9 or REI sale catalog.  I open this letter from “Midelity” and see a check.  Woohoo!  Money!  But wait, why are they sending me money?

Back in December, I had sent in paperwork to rollover my entire 401k from “Midelity” to Vanguard.  I had put a lot of thought into consolidating all of my retirement investments and had sought advice from a trusted financial advisor friend.  The bulk of the money had rolled over in December or January.  Apparently, there was some sort of distribution in the funds or stock I held after the transfer and on an arbitrary date in May, Fidelity, I mean “Midelity”, went through all accounts of those that were no longer employees and had less than a certain amount of money, and sent checks to those people.  Made out to the individuals.  Minus taxes.  Yeah, that’s right.  I now had a check made to me, less almost $200 that was already sent to the U.S. government.  Thanks “Midelity”!

Now, I happen to have worked for another mutual fund company in my lifetime and was fairly certain that this was not a good thing in many ways.  I called Midelity to ask why this was sent and got the answer that it was a “sweep” of accounts.  Apparently I had not called them after a letter was sent to me asking how I wanted the funds distributed.  With no response from me, did they distribute the funds the same way the previous rollover was done?  Of course not!  Their default process was to distribute funds directly to the owner.  As many of you know, my options at this point are:

1. Keep the money and, in addition to paying taxes, pay the 10% penalty for early withdrawal on the entire amount.
2. Sign over the check (within 60 days), less the taxes to a rollover account, knowing that I will get a refund of some of those taxes, but will also be penalized 10% for the amount of the tax withdrawal.
3. Cash the check, then write a new check for the gross amount of the distribution and deposit into a rollover account. No penalty and I will receive my taxes back….. when I file them next year.
4. Convince, threaten or cajole the 401k company to rectify their mistake.  Good luck with that.

This is wrong on so many levels!  As an investor, I am livid!  As a marketer, I have ridiculous amounts of scorn and a boatload of passion to take the time to call out companies that have violated the most basic ‘customer first’ rules. With a background in investing, Iknew that I needed to take extra steps but had to confirm what they were.  The average person would have no idea that there was a problem or know to fix it. So, here is my list of what “Midelity” did wrong and what they can do to fix it.

1. All of this could have been avoided if “Midelity” simply followed the directions for the initial rollover.  The money would have been transferred to my rollover account, and I would have noticed it on my next statement.  If it is all about CYA (and I have no doubt that it is), just have a box that can be checked on the initial rollover forms that states that any additional funds that are added to the account after the initial transfer will simply be transferred in the same way at a later date.
2. A single letter to notify a person that you are about to take money out of their bank account (to make up the tax withdrawal), force a possible tax penalty and cause headaches is not enough.  There are numerous ways to communicate with customers..  A single form of outdated communication is not enough today.  Make the effort.  Because if a company doesn’t, they will soon find out how many forms of communication can hurt them.
3. Defaulting a process to the most painful choice for your customers is NOT a way to win loyalty.  There was no need to default to a distribution, unless the sole reason is that a company doesn’t want to maintain low balance accounts.  If that is the case, shout that loud and clear.  Make your audience abundantly aware that you don’t want their business before making life difficult for them.  Otherwise, change the process so that the default is not obnoxious, annoying and irritating.  Those are never great words to describe a business.
4. After receiving my call and hearing my annoyance, nothing was done to rectify the situation on their end.  No admission of a mistake and no offer to reverse the situation.  Companies make mistakes once in a while.  That’s okay.  It’s in how they handle it that shows what kind of company they are.  In fact, rectifying mistakes is how you gain your most loyal customers.  Give more power to your front line people.  And have your policy makers answer phones just a single day of every month to learn the effects of their policies.Don’t blame the mistake on the company plan.  I realize that the customer service rep has to follow the plan rules, but who helped the company set up those rules in the first place?  Why hasn’t someone pointed out to the plan sponsor that their rules are not good?

It doesn’t matter how big you are.  If you don’t treat your customer fairly, someone else will.  Thanks for letting me guest blog!

Celeste Jacroux
Guest Blogger for Castle Rock Investment Company

Tip: Plan sponsors can instruct their recordkeepers to follow the original distribution instructions when liquidating a participant account.  It’s a good customer service practice that is rarely instituted.