What happens if you have a 401K and/or a Roth IRA and the company you work for goes out of business?

Question

I heard that if you are working for the company at the time it goes out of business, you will have to give up some of the money you have put away. But what if you know a few months ahead of time and you get a new job just days prior to the business going under, will your money be ok?

Answer 1

You can roll it over into another IRA or eligible retirement plan.  Do not take posession of the money planning on depositing soon, or you will pay taxes on it, as well as penalties for early withdrawl.  Roll it directly into another retirement plan.  I am not an expert, but have learned this through experience.

Answer 2

your IRA is always in your name so what the company does has no bearing on anything.

The 401k is held in a trust that SHOULD (sometimes companies don't do this) have a seperate legal name and seperate tax ID number.  This protects the 401k from creditors of the company should it go out of business.

What this means is that getting a new job before or after the company goes under has no bearing on the 401k.  HOWEVER...it does have an impact on vesting.  But it's the reverse of what you think.  If the company goes out of business then the plan will terminate at the same time.  At the time of termination ERISA mandates that all employees will become 100% vested in their employer money (profit sharing and match).  If you quit early then you wouldn't be entitled to that automatic 100% vesting.   Further...all the non-vested money from people who quit early gets allocated to the remaining employees so they'll get an additional forfeiture allocation that you wouldn't get if you quit early.  None of this money can go back to the employer...however, if the plan states that it is used to pay fees and then allocated as a forfeiture then  it can be used to pay fees of the plan (ie the recordkeeper).  But it still can't be "lost" or go back to the employer.

Answer 3

Typically, the balances in the 401(k) or IRA account are held in a legally separate retirement trust account and managed by an independent 3rd party (i.e. Fidelity).  The balances in the account should not be effected by the company going out of business.  The deposits that are vested are 100% yours (along with any returns these funds have made), the portion that you will not get will be the unvested portion of any company match.  The only execption to this is if ther is any company stock in the account - that will be worthless if the company goes under.

Of course, you need to read your plan document to see exactly how your company plan operates.

Answer 4

I agree with NHMike on this one.

But to answer your question....You probably overheard someone talking about not being fully vested. It's true that if a company goes out of business when you aren't fully vested, you lose some/all of the money THEY put in.

Answer 5

that's why you should open your own and not rely on your company for retirement security..because utimately its the company picking what to invest your money in...and if they're out of business..they obviously didnt invest well enough.

Answer 6

401(k)'s and other employer retirement accounts are protected by the Pension Guarantee Corporation - a quazi gov agency. They do not guarantee you will make money in your investments, only that the assets cannot be seized or lost as a result of failure by a company.

"PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974.

It currently protects the pensions of nearly 44 million American workers and retirees in 30,330 private single-employer and multiemployer defined benefit pension plans. PBGC receives no funds from general tax revenues.

Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans."

http://www.pbgc.gov/

Roth IRAs are not held by an employer. They are held by an bank, broker or insurance company FBO (for benefit of) the individual.

If you think a business is going under, or are leaving do a 401(k) to IRA Rollover asap so you won't have to deal with issues later.

http://www.investopedia.com/articles/ret...

http://personal.fidelity.com/products/re...