Don’t Mess With Paul

Yesterday I described my run-in with a credit card company that chewed me out for approaching them with a poor attitude . . . and then refused to waive a $20 late fee. Something tells me this might not have played out the same way with Paul Fischer, of Virginia.

Writes he:

I recently had a run-in with one of my 401(k) companies and I’d like to pass that lesson along to your readers.

I had been one-third owner in a small business, and after a year and a half we were able to start up a small 401(k). We agreed to a penalty for early withdrawal, thinking it would give our employees greater reason to stay with the company over the long haul.

I rolled an older 401(k) into the plan, thinking nothing about the penalty, as I was an owner. I never imagined that two and a half years later I would have sold out to my partners and moved on. Now, four years after its inception, my partners are closing down the plan, and I am being forced to move my accounts. I called the 401(k) company, and they insisted that they had a contract and would be taking about $4,600 of my money, regardless of whether I kept the money invested with them.

They said the early withdrawal penalty applied even though I wasn’t quitting the plan, the plan was quitting me. I got really angry about this, and sat down for a good think. I came up with some points to threaten them on, and apparently one if not all struck home. I would like to share these with your readers since they may someday be in a similar situation, and should learn that there is always an alternative and that persistence will get you what you want.

In order to do this, you must know what you want. I have been happy with the fund performance, and would gladly roll my money over to an IRA with the same investment company as long as they abolished the early withdrawal penalty. This became my goal.

The first thing I did was ask for the boss of the person in charge of my plan. Usually the front line people are not allowed to make deals or exceptions to policy (read corporate dogma). This got me on the phone with someone who would feel the heat really bad if I went above his head, which I threatened to do. Never be afraid to take things all the way to the top.

Next, I computed, conservatively, what my account would be worth when I reached 67 (36 years from now). Since I have been earning about 16% annually on these funds I decided a long term average of 12% over my lifetime would be a conservative return. Using the Rule of 72, I calculated my current account will be worth about 64 times what it is now by the time I retire. Although the account is relatively small now, it would be worth well over $2,000,000 by the time I started withdrawing from it! This, I felt, gave me some leverage.

I thought about some proper threats to motivate them to see my point of view. And I came up with some good ones, if I do say so myself.

1) File a complaint with the SEC. Since the plan was quitting me, and they were penalizing me as if I were quitting the plan, I considered this legalized theft. I figured I could easily cost them 10 times my penalty in legal bills if I asked the SEC to investigate legalized theft. Again, this will not apply to everyone, as my situation was special, but it seemed to me a good way to achieve my goal.

2) Never do business with them again. Although my accounts are small now, they will be worth several million when I retire. Whichever companies I do business with will make lots of money in the long run. If they want to keep me for that long run they can make a lifetime friendly customer who will tout their respectability or they can make a mortal enemy.

3) Tell a friend. Either way, I plan to tell lots of people whether or not they are a good company to deal with. If all my friends are in about the same financial place as me, and I get 5 to switch away from their company, they lose the management of over 10 million dollars by the time we retire. If they submit to my demands, they could gain just as much.

4) Go public. I also threatened to post my story all over the Internet if things didn’t go my way. There is nothing they can legally do to me if I print the truth, so I planned to blast them week after week, month after month, and let people know how heartless and pedantic they were.

Fortunately, they backed off their stance, probably because it was a special case. Possibly because I outlined several things I would actively pursue that would cost them a minimum of $46,000 and the management of an eventual 2 million dollars. At most, I could have cost them several accounts totaling tens of millions of dollars.

Let your readers know they can stand up to these financial institutions and get their way. Also, I’ve never seen you cover the rule of 72, so you might want to expound on that.

Even if I had any serious reservations about Paul’s approach, and I have only minor ones (like: a contract is a contract, though I haven’t read this one), I’d be afraid to voice them. This guy’s tough! But he was right to pursue the case, because it ended up win-win. He got to keep his $4,600; they got to keep a customer.

For those of us who are already hellions when it comes to this stuff, Paul’s tale just confirms our aggressiveness. To those of us who are meek, it suggests a way of inheriting a little more of the earth while we’re still here to enjoy it.

[The Rule of 72 is an easy way to dazzle your innumerate friends. It tells you how fast money will double, roughly, at any given interest rate. Just divide 72 by the rate. Three into 72 is 24, meaning that money growing at 3% doubles every 24 years. Six into 72 is 12, meaning that money growing at 6% doubles every 12 years. Eight into 72 is 9, meaning that money — well, you get the idea.]