Former mortgage firm employees can't tap 401k funds

By CHRISTIE SMYTHE
Arizona Daily Star
Friday, August 24, 2007

Laid-off First Magnus workers, already going without their final paychecks, are facing another financial worry: They can't access their retirement accounts, which some hoped to use for living expenses.

Eleven former employees of the mortgage lender in Texas, Colorado and Tucson said they were told they cannot access funds in 401(k) retirement accounts because First Magnus Financial Corp. did not give the plan administrator proper notification of the layoffs.

"They flat out told me I couldn't get my money," said Bertha Flores, a former First Magnus employee in Denver, referring to the plan's administrator, Principal Financial Group.

Flores said she was counting on her last paycheck, of around $1,500, to pay her rent and car payment, among other expenses. Now she is facing eviction, she said, and she is selling plasma for gas money.

"Our lives have been totally turned upside down," she said.

The Tucson-based company, which had about 5,500 employees nationwide, laid off more than 5,000 workers last week, including at least 565 in Tucson.

The company filed for Chapter 11 bankruptcy on Tuesday. Final checks cannot be released to former employees until the court grants permission, which could take weeks or months.

The company's shareholders and executives have given $2,000 checks from their own personal funds to employees in Southern Arizona, but no similar relief has been offered for the rest of the company's former workers.

A spokeswoman for Principal, Terri Hale, could not comment directly on First Magnus employees' 401(k) funds, but said generally the administrator can release funds only after it is notified of the termination of the employees or plans. But the employee and company contributions to the funds should be safe from creditors, she said.

Attorneys for First Magnus said the 401(k) plan is being tested to ensure it meets federal tax regulations, and funds might be available sometime next week, according to information forwarded by company spokesman Gary Baraff.

Tucson retirement adviser Dave Shepherd said employees should avoid cashing out 401(k) accounts early because of severe tax consequences. Employees might also not be able to replace the funds later, he said.

Former Tucson First Magnus employee Bryant Keefe said he doesn't want to tap his 401(k).

"But if it's between making the mortgage payments and cashing that out, then we'll cash it out," he said.

Contact reporter Christie Smythe at csmythe(at)azstarnet.com