Expert: Shirley McAllister, CPP, PHR - 3/27/2009

Question
I currently have a 401k loan with a stipulation you must pay it off in full if you leave your company. My company recently filed for bankruptcy protection and is now expected to be bought out by another company.  In this case they said that we would need to resign from one company to then accept the offer with the new company, even though we are being sold.  The company hasn't provided any policy updates on 401k loans?  What penalties would I face in this situation?  Do I have any legal rights since I didn't voluntarily leave the company and they decided to sell?  If you can't answer, any other recommendations you have?


Answer
I do not know the exact specifics of your 401K plan and they all are written differently.

There is something that might work for you.

Senerio #1.  You resign from the company, the loan is paid off from the 401K balance you have and roll the balance over to an IRA.

If you resign than you need to know at that point you will not be eligible to draw unemployment from the bankrupt company if the new company decides not to keep you on.

Senerio #2.  You do not resign. You will still be paid your 401K because of the company going bankrupt. The Loan is paid from the balance of your 401K. You roll the balance after the loan over to an IRA.

You go down and sign up for unemployment. You can draw that until you can find another job. If the new company wants to hire you than they can hire you.

Good luck whichever way you decide to go.

Shirley