401k's - Protected or not?

[Life_is_Good]

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?

[gindie]

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

[crazy connie]

Yes... Read up on VESTING

[Freein05]

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.

[saluki9]

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

[mathjak107]

went thru it at my old company, our 401k's were safe and we got every penny.

[theoldwizard]

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.

[Martha]

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.

[bssc]

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.

[cute fuzzy bunny]

That brings me to the next question...what happens if something bad happens to the trustee?

[Martha]

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.

[saluki9]

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.

[theoldwizard]

Originally Posted by Martha

... 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 !)

[cute fuzzy bunny]

So we need to get Paris Hilton involved in a donut shop if we're going to help her avoid future jail time?

[HFWR]

Originally Posted by cute fuzzy bunny

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

[pfpelican]

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.

[FinanceDude]

Originally Posted by saluki9

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..........