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TESS VIGELAND: Wanna give your employer an interest-free loan? How about your 401(k) plan provider? Didn't think so.
But that's what some Americans are doing, whether they know it or not. It's all thanks to the "float": the amount of time it takes for 401(k) contributions to move out of your paycheck and into your retirement account. A little float may be OK. But what are your rights if it's a lot?
Rico Gagliano dipped his toe in the deep end to find out.
RICO GAGLIANO: [KID SOUNDS, SPLASHING] So I'm sitting by my friends' pool, watching their 2-year-old daughter floating with her new inflatable water wings. . . . And as she splashes, she's endangering a few hundred bucks' worth of my recording equipment, by the way. But aside from that, it's a pretty good way to cool off here in summertime Los Angeles.
When your 401(k) money floats, though, it can be really uncool. I called a listener named Mark from Baltimore, to hear his story.
GAGLIANO: So what happened?
MARK: When I first started with the employer, they offered a 401(k) plan. Had a company match of 5 percent. As time went on, the match dropped off -- no longer offered. And pretty soon we'd see a 401(k) contribution taken out of our paycheck, but not appear on the 401(k) statements.
GAGLIANO: The money would be deducted from your paycheck and it wouldn't appear in your 401(k) until later.
MARK: Correct. At times it was months, sometimes it was many months.
GAGLIANO: Do you know why this was happening?
MARK: Times have been tight. There were times we didn't have money for paper towels.
GAGLIANO: No money for paper towels. Oh, man.
MARK: I talked to the chief financial officer and he says, "Well, they had other bills to pay.
GAGLIANO: So they were holding on to your 401(k) money to pay the bills, basically.
MARK: Operating expenses, right.
Not exactly happy poolside listening, is it? Mark's contributions did eventually end up in his account, but the delay was still illegal. And it's not an isolated case: Last year the Department of Labor says it e "corrected" over 1,100 violations of federal rules governing 401(k) floats. The rules are part of a law called ERISA. Which stands for . . .
JOHN HOTZ: The Employee Retirement Income and Security Act." Which, uh, many practitioners will say actually stands for "Every Rule Is Somewhat Ambiguous."
That's John Hotz, deputy director of the non-profit Pension Rights Center. I asked him to try and explain some of those ambiguous rules. Like, for instance, how fast must employers get your 401(k) cash into your account?
HOTZ: As soon as is administratively feasible. In today's day, this is really just an automated function. It can happen within 24 to 48 hours in most situations.
Problems usually crop up with small businesses, which don't have automated 401(k)s and often do have an accounting staff of just one person. By law, even they have to deposit an employee contribution within 15 days after the month it's deducted from a paycheck. But Hotz says many small businesses simply don't know that. In fact, a few don't seem to know much of anything about 401(k)s.
HOTZ: A call came in from an employee of a small concern that was family owned and operated. And it ended up that the plan administrator had really no idea what responsibilities were involved in administering a 401(k) plan. So I ended up buying a small desktop reference book for this person, and put some Post-It notes on certain pages.
But what if the problem isn't your employer? Tim Wood is with Deschutes Investment Advisors in Portland, Oregon.
TIM WOOD: There are two sides of the float: One is the employer side and the other I guess I would call the "investment" side.
That's when the 401(k) provider sits on your money a while, even after they get it from your employer.
WOOD: Why this is a problem is that every day that money's floating, the investment provider is actually earning income on it, because it's being invested in short-term accounts. And that money is not being credited to the participants. So, in effect, it really is a fee.
A short provider float may be unavoidable. But if it becomes too long? It's your employer's legal responsibility to get on the provider's case about it. So if you've told your boss about a long float and nothing's been done, it might be time to call in the Department of Labor. Of course, whistleblowers in small companies risk a lot. That's why our listener Mark didn't blow a whistle.
MARK: I didn't like it, but what am I gonna do? Call the federal authorities? Jeopardize my company? Jeopardize my job?
Actually, maybe. The Pension Rights Center's John Hotz says it can work out for the best. But employees who take the plunge . . . [SPLASH!] . . . Should be ready to sink or swim.
In Los Angeles, I'm Rico Gagliano for Marketplace Money.