LAND O'LAKES — The Pasco County School Board thought it had canceled its 401(k) retirement account for employees on March 4.
Six weeks later, it's not so clear it accomplished that goal.
As employees began following the district's instructions to get out of the 401(k) plan, they found administrator Vista Management Co. unwilling to release the funds for rollover into other retirement investment options. About 300 district employees have Vista accounts totaling about $13-million.
The board might have ended its active participation in the plan, so that no one may contribute more, Vista president Patrick Peters said Wednesday. But "the plan is still in effect."
"And as long as the plan is in effect, we must comply with all the regulations" relating to movement of funds, Peters said, saying that the company is acting on the advice of legal and tax experts.
Vista's stance has prompted superintendent Heather Fiorentino and her staff to reconsider the advice it originally gave to employees.
"A letter is going out to employees … asking them not to do anything until we can get this worked out," benefits director Mary Tillman said Thursday.
The School Board's action to terminate the plan came after nearly a year of research by the district staff. The 401(k) plan, which few school districts have, had become expensive to maintain and duplicated services provided through retirement programs designed specifically for government entities such as school districts.
Fiorentino and chief financial officer Olga Swinson met with board members, union leaders and other key officials to discuss the move in the months leading to the March 4 vote, which went off with minimal debate.
On March 5, Tillman sent a letter to participating employees. She told them of the board's action, and said they must move all their 401(k) funds into a "qualified investment account," such as a 403(b), before Jan. 1.
"If you have not taken action by that time, you will receive a check from VMC for the amount of your investment less applicable federal tax withholding and penalties," Tillman wrote.
With that, many headed to banks and credit unions to begin the process. They quickly got rebuffed.
Vista was telling these other financial institutions it could not roll over the accounts because of IRS rules. Those state that employees may not roll over a 401(k) unless they terminate their employment, reach retirement age, qualify for a hardship or die.
If they take out their money otherwise, they will face the penalties that Tillman warned of in her March 5 letter.
Vista sent its own letter explaining its position to participating employees April 10, Peters said, "because there is a disconnect when it comes to the school district, and we need to resolve it."
Phones in the district and at Vista started ringing, with employees asking pointed questions about their money.
Tillman said she had believed her letter instructing workers to move their accounts was correct when she sent it.
"Whether they could leave their money in there (the 401(k) plan), the consultant told me they could not," she said, adding that board attorney Dennis Alfonso reviewed the letter.
Alfonso said he did not believe the rollover is prohibited, but he has asked Vista leaders to prove their position.
"If required, we will have an independent counsel look at it to make certain their interpretation of the IRS regulations are accurate," Alfonso said.
Representatives from the district and Vista plan to meet before the end of the month to talk, something they haven't done since March.
Both sides said they have just one thing in mind: protection of the investors' assets.
"Our primary concern is the employees of the school district," Peters said. "We do not want to bring any harm to them by authorizing any distribution to them that is inconsistent with the plan. It would become a taxable event."
Tillman said, "I don't want people to begin taking out distributions just because they think it is what they should be doing."
But she added: "The idea that we're in a plan that we cannot terminate without penalizing our employees does not make any sense to me."
Jeffrey S. Solochek can be reached at [email protected] or (813) 909-4614. For more education news, visit the Gradebook at blogs.