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Vistra Employees: Exploring Your Options for In-Service Withdrawals from Your 401(k) Plan

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If you have worked at a corporation, you may be familiar with the rules for putting money into a 401(k) plan. But are you familiar with the rules for taking your money out? Federal law limits the withdrawal options that a 401(k) plan can offer. But a 401(k) plan may offer fewer withdrawal options than the law allows, and may even provide that you can't take any money out at all until you leave Vistra. However, many 401(k) plans are more flexible.

First, consider a plan loan

Many 401(k) plans allow you to borrow money from your own account. A loan may be attractive to our Vistra clients who don't qualify for a withdrawal, don't want to incur the taxes and penalties that may apply to a withdrawal, or don't want to permanently deplete their retirement assets. (Also, you must take any available loans from all plans potentially maintained by Vistra before you're even eligible to withdraw your own pretax or Roth contributions from a 401(k) plan because of hardship.)

In general, you can borrow up to one-half of your vested account balance (including your contributions, Vistra's potential contributions, and earnings), but not more than $50,000.

You can borrow the funds for up to five years (longer if the loan is to purchase your principal residence). In most cases, you repay the loan through payroll deduction, with principal and interest flowing back into your account. But keep in mind that when you borrow, the unpaid principal of your loan is no longer in your 401(k) account working for you.

Withdrawing your own contributions

If you've made after-tax (non-Roth) contributions, your 401(k) plan can let you withdraw those dollars (and any investment earnings on them) for any reason, at any time. You can withdraw your pretax and Roth contributions (that is, your 'elective deferrals'), however, only for one of the following reasons—and again, only if your plan specifically allows the withdrawal:

You attain age 59½
You become disabled
The distribution is a 'qualified reservist distribution'
You incur a hardship (i.e., a 'hardship withdrawal')

Hardship withdrawals are allowed only if you have an immediate and heavy financial need, and only up to the amount necessary to meet that need. In most plans, you must require the money to:

Purchase your principal residence, or repair your principal residence damaged by an unexpected event (e.g., a hurricane)
Prevent eviction or foreclosure
Pay medical bills for yourself, your spouse, children, dependents, or plan beneficiary
Pay certain funeral expenses for your parents, spouse, children, dependents, or plan beneficiary
Pay certain education expenses for yourself, your spouse, children, dependents, or plan beneficiary
Pay income tax and/or penalties due on the hardship withdrawal itself

Investment earnings aren't available for a hardship withdrawal, except for certain pre-1989 grandfathered amounts.

But there are some disadvantages to hardship withdrawals that our clients from Vistra should keep in mind, in addition to the tax consequences described below. You can't take a hardship withdrawal at all until you've first withdrawn all other funds, and taken all nontaxable plan loans, available to you under all retirement plans potentially maintained by Vistra. And, in most 401(k) plans, the employer, such as Vistra, must suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose valuable potential Vistra-matching contributions. Hardship withdrawals can't be rolled over. So it's important for Vistra employees to think carefully before making a hardship withdrawal.

Withdrawing employer contributions

Getting employer dollars out of a 401(k) plan can be even more challenging. While some plans won't let you withdraw employer contributions at all before you terminate employment, other plans are more flexible, and let you withdraw at least some vested employer contributions before then. 'Vested' means that you own the contributions and they can't be forfeited for any reason. In general, a 401(k) plan can allow you to withdraw vested company matching and profit-sharing contributions if:

You become disabled
You incur a hardship (your employer has some discretion in how hardship is defined for this purpose)
You attain a specified age (for example, 59½)
You participate in the plan for at least five years, or
The employer contribution has been in the account for a specified period of time (generally at least two years)

Taxation

Your own pretax contributions, company contributions, and investment earnings are subject to income tax when you withdraw them from the plan. If you've made any after-tax contributions, they'll be nontaxable when withdrawn. Each withdrawal you make is deemed to carry out a pro-rata portion of taxable and nontaxable dollars.

Your Roth contributions, and investment earnings on them, are taxed separately: if your distribution is 'qualified,' then your withdrawal will be entirely free from federal income taxes. If your withdrawal is 'nonqualified,' then each withdrawal will be deemed to carry out a pro-rata amount of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if you satisfy a five-year holding period, and your distribution is made either after you've reached age 59½, or after you've become disabled. The five-year period begins on the first day of the first calendar year you make your first Roth 401(k) contribution to the plan.

The taxable portion of your distribution may be subject to a 10% premature distribution tax, in addition to any income tax due, unless an exception applies. Exceptions to the penalty include distributions after age 59½, distributions on account of disability, qualified reservist distributions, and distributions to pay medical expenses.

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Rollovers and conversions Rollover of non-Roth funds

If your in-service withdrawal qualifies as an 'eligible rollover distribution,' you can roll over all or part of the withdrawal tax-free to a traditional IRA or to another potential Vistra plan that accepts rollovers. In general, most in-service withdrawals qualify as eligible rollover distributions except for hardship withdrawals and required minimum distributions after age 70½. If your withdrawal qualifies as an eligible rollover distribution, your plan administrator will give you a notice (a '402(f) notice') explaining the rollover rules, the withholding rules, and other related tax issues. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you don't directly roll the funds over to another plan or IRA.)

You can also roll over ('convert') an eligible rollover distribution of non-Roth funds to a Roth IRA. And some 401(k) plans even allow you to make an 'in-plan conversion'--that is, you can request an in-service withdrawal of non-Roth funds, and have those dollars transferred into a Roth account within the same 401(k) plan. In either case, you'll pay income tax on the amount you convert (less any nontaxable after-tax contributions you've made).

Rollover of Roth funds

If you withdraw funds from your Roth 401(k) account, those dollars can only be rolled over to a Roth IRA, or to another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Again, hardship withdrawals can't be rolled over.) But be sure to understand how a rollover will affect the taxation of future distributions from the IRA or plan. For example, if you roll over a nonqualified distribution from a Roth 401(k) account to a Roth IRA, the Roth IRA five-year holding period will apply when determining if any future distributions from the IRA are tax-free qualified distributions. That is, you won't get credit for the time those dollars resided in the 401(k) plan.

Be informed

We recommend that our clients from Vistra become familiar with the terms of Vistra's potential 401(k) plan to understand your particular withdrawal rights. A good place to start is the plan's summary plan description (SPD). Vistra will give you a copy of the SPD within 90 days after you join the plan.

How does the eligibility criteria for participation in the Vistra Operations Company pension plan differ for represented and non-represented employees? Specifically, what factors should an employee of Vistra Operations Company consider in understanding whether they qualify for the PRB Structure of the Plan based on their employment agreements and status?

Eligibility Criteria for Represented and Non-Represented Employees: The Vistra Operations Company pension plan has distinct eligibility criteria for represented and non-represented employees. Non-represented employees hired or rehired on or after January 1, 2019, are not eligible to participate in the plan, as their benefits were frozen effective December 31, 2018. Represented employees are subject to their collective bargaining agreements, and their participation may vary depending on the terms of those agreements(Vistra_Operations_Compa…).

What steps should an employee at Vistra Operations Company take if they wish to contest a denial of benefits they believe they are entitled to under the plan? Please outline the procedures outlined in the document that the employees must follow to ensure their rights under the Employee Retirement Income Security Act are upheld.

Contesting a Denial of Benefits: Employees must file a written claim for benefits if they believe they were denied benefits under the plan. The plan administrator reviews the claim, and if it is denied, the employee has the right to request a review of the denial within 60 days. Employees can provide additional documentation and will receive a final decision within 60 to 120 days depending on circumstances. If the claim is denied after review, the employee has the right to file a civil action under ERISA(Vistra_Operations_Compa…)(Vistra_Operations_Compa…).

For employees of Vistra Operations Company who are nearing retirement age, what options do they have concerning their pension benefits, and how can they make the most informed decision regarding the form of payment they choose? What factors specific to their circumstances and relation to the plan should they consider, such as marital status or previous employment benefits?

Options for Employees Nearing Retirement: Employees nearing retirement have several options for receiving their pension benefits, including single life annuity or joint and survivor annuity payments. Factors such as marital status, existing benefits, and personal financial circumstances will affect their decision. For instance, married employees may elect a joint and survivor annuity, which provides reduced monthly payments during their lifetime and continues to pay a portion to their spouse after their death(Vistra_Operations_Compa…)(Vistra_Operations_Compa…).

In what ways does the Vistra Operations Company pension plan accommodate employees transitioning from another employer's retirement plan, particularly with frozen benefits under an acquired plan? Employees should consider how these changes could impact their retirement outcomes and what steps are needed to integrate these benefits.

Transitioning from Another Employer’s Retirement Plan: Employees who transition from another employer’s retirement plan, especially those whose benefits have been frozen under an acquired plan, may still be eligible for interest credits on their account balances. The plan allows these employees to continue receiving interest credits while their account remains in the plan, preserving the value of their retirement savings(Vistra_Operations_Compa…)(Vistra_Operations_Compa…).

How can employees of Vistra Operations Company name a beneficiary in relation to their retirement benefits, and what specific requirements must be met to ensure that the designation is legally valid? Discuss the implications for both the employees and their chosen beneficiaries, including any necessary consents or notarizations.

Naming a Beneficiary: Employees can designate a beneficiary for their pension benefits, and if they are married, their spouse must provide notarized consent if they choose someone else as their beneficiary. It is important to update this information following life changes, such as marriage or divorce, to ensure benefits are distributed according to their wishes(Vistra_Operations_Compa…).

What provisions are in place within the Vistra Operations Company pension plan for employees who become disabled before reaching retirement age? Employees should understand how disability benefits interact with their retirement benefits and what criteria they must meet to access these provisions.

Provisions for Disabled Employees: Employees who become disabled before reaching retirement age may still be eligible for 100% vesting in their pension benefits. The plan recognizes disability as a qualifying event for full vesting if the employee receives Social Security disability benefits(Vistra_Operations_Compa…).

How does the annual interest crediting rate for defined benefit plans apply to employees of Vistra Operations Company, and what recent adjustments have been implemented that might affect their retirement savings? Review the specifics in relation to current economic indicators affecting these plans.

Annual Interest Crediting Rate: For defined benefit plans, the interest crediting rate is based on the 30-year Treasury securities rate, which can affect employees’ retirement savings. Represented employees may be subject to minimum interest credit rates depending on their collective bargaining agreements, while non-represented employees' interest credits continue even after benefits were frozen(Vistra_Operations_Compa…).

What are the implications of being classified as a non-represented employee under the Viesta Operations Company pension plan, especially considering the plan was frozen for them starting January 1, 2019? Employees should evaluate how this classification impacts their retirement planning and options moving forward.

Impact of Being a Non-Represented Employee: Non-represented employees had their benefits frozen as of December 31, 2018. This freeze means they no longer accrue new benefits, but they may still receive interest credits on their existing frozen benefit. Employees in this classification should evaluate alternative retirement savings options moving forward(Vistra_Operations_Compa…).

Could you explain the importance of the â€œnormal retirement ageâ€ and how it affects the pension benefits for participants in the Vistra Operations Company pension plan? Illustrate how this age plays a significant role in defining eligibility and benefit calculations.

Importance of "Normal Retirement Age": The normal retirement age under the plan is 65. This age is critical because it affects when employees become eligible for their full pension benefits without reduction, which plays a significant role in the calculation and payment of benefits(Vistra_Operations_Compa…).

What are the best ways for employees of Vistra Operations Company to contact the Plan Administrator to obtain additional information about their pension benefits and claims? Provide details on the resources available and the recommended channels for reaching out effectively, particularly regarding any changes in address or personal details affecting their benefits. These questions are designed to guide employees through the retirement process and help them navigate the specifics of their pension plan under Vistra Operations Company.

Contacting the Plan Administrator: Employees can contact the Vistra Pension Center for information regarding their pension benefits. They can reach the center at 1-855-568-4146 or online at http://ypr.aon.com/Vistra for assistance with questions or changes to their personal details(Vistra_Operations_Compa…)(Vistra_Operations_Compa…).