Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
401k's - Protected or not?
Old 05-19-2007, 07:33 PM   #1
Recycles dryer sheets
Life_is_Good's Avatar
 
Join Date: Mar 2007
Posts: 227
401k's - Protected or not?

Hello All -

I'm wondering what happens to a 401k if the employer goes belly up? I'm talking about a mid sized corporation. For bank deposits there is the FDIC. For Pensions there is the PBGC.

When I retired early, I left my 401K at the old employer. It continues to grow and I see no reason to roll it into an IRA at this time unless I feel the firm may experience financial hardships.

Is there any Federal protection for 401k's similar to the protections listed above?
__________________

__________________
Life_is_Good is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: 401k's - Protected or not?
Old 05-19-2007, 07:42 PM   #2
Recycles dryer sheets
 
Join Date: Jul 2004
Posts: 430
Re: 401k's - Protected or not?

401k's aren't an asset of the company, rather they are held by a trustee that the company has contracted with.
__________________

__________________
gindie is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-19-2007, 07:42 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Feb 2006
Posts: 1,183
Re: 401k's - Protected or not?

Yes... Read up on VESTING
__________________
crazy connie is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-19-2007, 07:48 PM   #4
Recycles dryer sheets
 
Join Date: May 2007
Posts: 137
Re: 401k's - Protected or not?

If the company matches your contribution in company stock that part of your 401K would be at risk. I think today the government will only allow 10% of the match to be in company stock.
__________________
Freein05 is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-19-2007, 08:42 PM   #5
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: 401k's - Protected or not?

Quote:
Originally Posted by gindie
401k's aren't an asset of the company, rather they are held by a trustee that the company has contracted with.
Yeah, don't worry about it. The worst I've seen happen is some delays in distributions after a bankruptcy but I would find something else to worry about

__________________
saluki9 is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-20-2007, 03:51 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
Re: 401k's - Protected or not?

went thru it at my old company, our 401k's were safe and we got every penny.
__________________
mathjak107 is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-20-2007, 01:00 PM   #7
Recycles dryer sheets
 
Join Date: May 2007
Posts: 107
Re: 401k's - Protected or not?

Quote:
Originally Posted by Life_is_Good
When I retired early, I left my 401K at the old employer. It continues to grow and I see no reason to roll it into an IRA at this time unless I feel the firm may experience financial hardships.
I disagree !

There are benefits of rolling it over into an IRA ! Most of these benefits are are for "your loved ones" who will inherit. Converting and IRA to a Roth IRA, while expensive, has even more benefits.

I have found this book, The Retirement Savings Time Bomb...and How to Defuse It, very easy to understand and very useful, especially on this topic.
__________________
theoldwizard is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-20-2007, 09:28 PM   #8
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: 401k's - Protected or not?

Your employer should not have control over the 401k, instead a trustee should be in control of plan assets. The failure of your employer's business should not effect the 401k. That said, I have seen employers who failed to forward contributions to the plan. Especially contributions due right before the business goes under. If the contributions never get to into the 401k, then there would be a problem.

I used to be hesitant about rolling over a 401k to an IRA because of the less protection an IRA had under bankruptcy laws. Now if you file bankruptcy an IRA has protection up to a million in assets and rolled over 401ks into IRAs have unlimited protection. Nevertheless, if you do not file bankruptcy, under state law an IRA may have less protections than a 401k.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-20-2007, 09:45 PM   #9
Moderator
bssc's Avatar
 
Join Date: Dec 2005
Posts: 9,929
Re: 401k's - Protected or not?

The only problem I had was when the employer took the money and did not send it on to the trustee. Took Elaine Chou to beat it out of them.
__________________
Angels danced on the day that you were born.
bssc is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-21-2007, 10:03 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: 401k's - Protected or not?

That brings me to the next question...what happens if something bad happens to the trustee?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-21-2007, 10:55 AM   #11
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Re: 401k's - Protected or not?

Quote:
Originally Posted by Cute Fuzzy Bunny
That brings me to the next question...what happens if something bad happens to the trustee?
I was wondering if someone would ask.

The plan assets are in trust for the participant's benefit. If the plan trustee ended up in bankruptcy or otherwise was insolvent, those assets would not be available to the trustee's creditors. Now if the trustee stole plan assets then the assets may be gone. It is possible that a fidelity bond would reimburse you for a trustee's bad acts. Trustees stealing plan assets has got to be rare rare rare.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: 401k's - Protected or not?
Old 05-21-2007, 11:19 AM   #12
Thinks s/he gets paid by the post
saluki9's Avatar
 
Join Date: Feb 2005
Posts: 2,032
Re: 401k's - Protected or not?

Quote:
Originally Posted by Martha
I was wondering if someone would ask.

The plan assets are in trust for the participant's benefit. If the plan trustee ended up in bankruptcy or otherwise was insolvent, those assets would not be available to the trustee's creditors. Now if the trustee stole plan assets then the assets may be gone. It is possible that a fidelity bond would reimburse you for a trustee's bad acts. Trustees stealing plan assets has got to be rare rare rare.
It's very rare

The only way it usually happens is if the trustee somehow pilfers the funds before they make it to the plan. This is a VERY rare event because every plan I have ever worked on has at least a few employees who check their contributions several times a day. The chances of them not noticing missing contributions is beyond small.

For a trustee to actually get money out of the plan (and not have the check sent to the bene or new custodian) would be near impossible.

__________________
saluki9 is offline   Reply With Quote
Old 05-23-2007, 03:51 AM   #13
Recycles dryer sheets
 
Join Date: May 2007
Posts: 107
Quote:
Originally Posted by Martha View Post
... I have seen employers who failed to forward contributions to the plan...
True, but this is fraud and is what sent Denny McLain (the '68 World Series Tigers pitcher) to jail for the second time.

(And the pitcher that won the series, 3 of the 4 winning games, was Mickey Lolich. He used to own a doughnut shop north of Detroit, but now he is retired and never spent a day in prison !)
__________________
theoldwizard is offline   Reply With Quote
Old 05-23-2007, 08:16 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
So we need to get Paris Hilton involved in a donut shop if we're going to help her avoid future jail time?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 05-23-2007, 09:54 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Quote:
Originally Posted by cute fuzzy bunny View Post
So we need to get Paris Hilton involved in a donut shop if we're going to help her avoid future jail time?
Nah, just place her on house arrest...in my house!

"All she really needed was some discipline..." FZ
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 05-23-2007, 11:41 AM   #16
Recycles dryer sheets
pfpelican's Avatar
 
Join Date: Jun 2006
Posts: 229
I got my Enron 401k after they went belly up...from the trustee. However, those who foolishly kept their company contributions of ENE stock in ENE stock lost all that when ENE went under. Also, as they approached bankruptcy, they discontinued the company contribution.
__________________
Old Guys Rule
pfpelican is offline   Reply With Quote
Old 05-24-2007, 03:14 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by saluki9 View Post
It's very rare

The only way it usually happens is if the trustee somehow pilfers the funds before they make it to the plan. This is a VERY rare event because every plan I have ever worked on has at least a few employees who check their contributions several times a day. The chances of them not noticing missing contributions is beyond small.
Then I guess the impossible happened to me, although the owner put the money back after one of his officers told him he was going to report him to the govt.........the money was invested but we never got the money we lost by not being in the market..........
__________________

__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
inherited 401ks Martha FIRE and Money 36 08-29-2006 11:36 AM
401ks in the early years macdaddy FIRE and Money 3 02-09-2006 10:06 AM
May I convert my old 401Ks to an IRA? RayMetz100 Young Dreamers 5 11-21-2005 11:22 AM
TIPS vs. Corporate Inflation Protected Securities rapoole FIRE and Money 8 01-07-2005 03:53 PM
7% SWR (non-inflation protected) newellcr FIRE and Money 5 11-13-2004 09:25 PM

 

 
All times are GMT -6. The time now is 02:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.