Why aren't 401k plans insured?

Question

I've gotten several explanations on this but none of them make sense. Why are IRAs insured but not 401k plans?

Answer 1

An IRA in a bank would be covered by FDIC insurance.

On the other hand, 401(k) plans are trusts, where money is promptly transferred to the trustee and invested.  There are certain safeguards, such as fidelity bonds to ensure against theft, Department of Labor oversight, and audits to ensure that the money is transferred as it is supposed to be.  But there is no federal insurance coverage.  

This arrangement may not seem as secure to you as having insurance, but remember, we are talking about actual assets that are invested as you direct, not about a promise to pay in the future, as you would receive with a pension or an annuity.  Even if there is insurance system, such as the FDIC (for banks) or PBGC (for pension plans), the insurance money can run out if the system is overloaded by defaults.  And until you actually receive your money from the bank or pension plan, they are "playing with your money", investing the money as they see fit; and they can make mistakes.

Answer 2

It depends on where your 401K money is invested. Some companies do insure them. And if your company goes out of business you keep the money in your 401K.

Answer 3

IRAs were set up by the government. 401ks are supplied by your employer. So, if your employer goes out of business, your 401k loses its backing.

Answer 4

i would be surprised if sipc didn't insure your 401k, actually,

as long as it's an account with a registered broker/dealer, it should be insured up to 500k (100k cash)