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401(k) funds frozen; investors can’t withdraw

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With all the recent turmoil surrounding Wall Street, it might be a good time to withdraw your 401(k) savings.  However, this is anything but easy:

Some stable-value funds also are blocking the exits. These funds, available only in tax-deferred savings plans such as 401(k)s, typically invest in bonds and use bank or insurance-company contracts to help smooth returns. But in cases of employer bankruptcy and other events that can cause withdrawals, these funds can lock up investor money for months at a time.

Investors in the Principal U.S. Property Separate Account said they understood the risk of losses, but didn’t think their money could be locked up for months or years. Most participants in the 15,000 plans holding the fund haven’t been able to make any withdrawals or transfers since late September.

Retirement plans offered to employees of energy company BP PLC last fall tried to withdraw entirely from four Northern Trust Corp. index funds engaged in securities lending. Certain holdings in Northern’s collateral pools had defaulted, been marked down, or become so illiquid that they could only be sold at low values, according to a BP complaint filed in a lawsuit against Northern Trust.

The BP plans halted new participant investments in the funds and asked to withdraw their cash so it could be reinvested in funds that don’t lend out securities.

But under restrictions imposed by Northern Trust in September, investors wishing to withdraw entirely from securities-lending activities would have to take their share of both liquid assets and illiquid collateral-pool holdings, according to a Northern Trust court filing. BP rejected that option, and the companies still are trying to resolve the matter in court.

See this for commentary.  It’s also where I got the original link from.

Written by defennder

May 8, 2009 at 8:44 AM

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