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

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 WestRock. 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 WestRock 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 WestRock 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, WestRock'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 WestRock 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 WestRock. And, in most 401(k) plans, the employer, such as WestRock, must suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose valuable potential WestRock-matching contributions. Hardship withdrawals can't be rolled over. So it's important for WestRock 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 WestRock 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 WestRock become familiar with the terms of WestRock's potential 401(k) plan to understand your particular withdrawal rights. A good place to start is the plan's summary plan description (SPD). WestRock will give you a copy of the SPD within 90 days after you join the plan.

How does the WestRock Company Consolidated Pension Plan specifically calculate the Normal Retirement Benefit for its employees, and what considerations should employees be aware of regarding the Final Average Pay calculation used by WestRock Company?

Normal Retirement Benefit Calculation: The WestRock Company calculates the Normal Retirement Benefit based on the employee's Final Average Pay. This is defined as the average of the employee's highest five years of earnings over the last ten years of employment before termination. Earnings included in the Final Average Pay are most wages, bonuses, commissions, and amounts deferred under the company’s 401(k) plan. Employees should be aware that earnings after December 31, 2015, are excluded unless they qualify under the Rule of 75(WestRock Company_Issued…).

What are the specific eligibility requirements for the Disability Retirement Pension under the WestRock Company plan, and how does this differ for Legacy Mead and Legacy Westvaco participants within the WestRock Company workforce?

Disability Retirement Pension Eligibility: To qualify for a Disability Retirement Pension, an employee must have earned at least five years of Vesting Service and be deemed "totally and permanently disabled" according to specific criteria. Legacy Mead and Legacy Westvaco participants are subject to special rules detailed in the Legacy Supplement. Legacy Mead employees must apply separate criteria from Legacy Westvaco employees(WestRock Company_Issued…).

In what ways can employees at WestRock Company manage and maximize their Vesting Service to ensure they receive the full benefits from the companyâ€™s pension plan, particularly for those with interrupted service or re-employment?

Vesting Service Maximization: WestRock employees can manage their Vesting Service by ensuring that they complete at least five years of service, which guarantees their right to pension benefits. Employees with interrupted service can still receive credit for Vesting Service if they return within five years. Additionally, employees who leave and return within a year will receive credit for the time they were absent(WestRock Company_Issued…).

How does the WestRock Company handle the transition of benefits for employees who transfer between different positions within the company, and what impacts could this have on their eventual retirement benefits?

Transfer Between Positions: When WestRock employees transfer between different positions, their retirement benefit is calculated based on the greater of two methods. The first method calculates the benefit accrued at each position separately, while the second method applies the total benefit service across positions. Vesting Service is always combined, regardless of location or position(WestRock Company_Issued…).

How does the WestRock Company plan ensure that pension benefits are protected, particularly through the Pension Benefit Guaranty Corporation (PBGC), and what should employees know about their rights and guarantees under this insurance?

Pension Benefit Protection (PBGC): The WestRock Pension Plan is insured by the Pension Benefit Guaranty Corporation (PBGC). This federal insurance guarantees that employees will receive their vested pension benefits even if the plan is terminated. Employees should understand that PBGC coverage has limits, and benefits might be reduced under certain circumstances(WestRock Company_Issued…).

What are the consequences for WestRock Company employees who choose to withdraw from their pension plan or to rollover their benefits upon retirement or termination? How can they navigate these options effectively to avoid penalties?

Withdrawals and Rollovers: Employees can withdraw or roll over their pension benefits upon retirement or termination. Lump-sum withdrawals may be subject to taxes unless rolled over into a qualifying retirement account. Employees should consult the WestRock Benefits Center to avoid penalties and ensure compliance with federal tax regulations(WestRock Company_Issued…).

How does the WestRock Company maintain compliance with federal regulations and best practices under ERISA, and what specific rights do employees have concerning their pension benefits?

ERISA Compliance: WestRock complies with the Employee Retirement Income Security Act (ERISA), ensuring that employees' pension rights are protected. Employees have the right to receive information about their benefits, act prudently, and enforce their rights through the claims and appeals process outlined in the plan(WestRock Company_Issued…).

What resources are available to employees of WestRock Company for understanding their benefits under the Consolidated Pension Plan, and how can they utilize these resources to ensure they make informed decisions about their retirement?

Resources for Understanding Benefits: WestRock provides employees access to the WestRock Benefits Center, where they can obtain information on their pension plan. Employees are encouraged to review the Summary Plan Description and consult with the Benefits Center for clarification on their benefits and to make informed retirement decisions(WestRock Company_Issued…).

How will the integration of employee benefits from various company acquisitions impact current staff at WestRock Company, and what steps is the company taking to communicate these changes effectively to its employees?

Impact of Acquisitions on Benefits: WestRock has acquired various companies over time, and employees from these acquisitions may have different pension rules applied to them. WestRock takes steps to integrate these employees and communicates any changes through the WestRock Benefits Center. Special rules may apply based on the previous employer’s pension plan(WestRock Company_Issued…).

How can employees of WestRock Company get in touch with the WestRock Benefits Center to seek clarification about the Summary Plan Description, and what are the best practices to follow when requesting information regarding their pension plan?

Contacting the Benefits Center: Employees can contact the WestRock Benefits Center for clarification on the Summary Plan Description. Best practices include having detailed questions prepared, reviewing the SPD in advance, and requesting copies of documents or forms that clarify specific aspects of their pension plan(WestRock Company_Issued…).