Another company has just purchased my employer. The new company has told us that we must keep our 401(k) money in the new company's plan. In other words, we are not allowed to withdraw our 401(k) funds as either a rollover to an IRA or as a lump sum distribution. Is this true?
Much as I would like to confirm your suspicion that your company is speaking in tongues, it is actually telling you the truth. Because the old 401(k) plan has been replaced by a new plan, the assets of the old plan must be transferred to the new one. No distributions are permitted.
The distribution rules for 401(k) plans are quite strict. In general, you are not permitted to take money out of the plan until you quit your job or retire, or the company terminates the plan and does not replace it with another.
The only exceptions to these distribution restrictions, if your plan permits them, are loans and hardship withdrawals.
These rules were created with you, the worker bee, in mind. They are intended to prevent employers from establishing a plan, terminating it to get the money out and then immediately establishing another one. Congress is attempting to enforce the no-nonsense theory that retirement plan assets should be used for retirement.