How to secure your nest egg against layoffs
October 2, 2009 · Tagged with Retirement
Americans lost 2.4 million jobs last year. And more workers are worried about getting a pink slip any day now.
This economic blizzard has many people in both groups — as well as retirees — wondering how safe their workplace retirement funds are.
If you’re laid off — or, even worse, your employer folds — how do you get your pension benefits? How about your 401(k) account? Is there anything you can do now to protect access to workplace retirement assets after a layoff or bankruptcy?
In a season of bleak headlines, the good news is that at least limited safeguards exist for both traditional pensions as well as 401(k) plans.
And the more you know in advance, the easier it can be to maintain unimpeded access to your retirement benefits and unimpeded control over your 401(k) account.
No one protects you from market impact on investments in your account. But any difficulties faced by your employer, including bankruptcy or going out of business, should not interfere with your access.
“It’s your money inside the account,” said Barbara Fallon-Walsh, head of Vanguard group’s institutional retirement plan services. “You are not a creditor of the company. You don’t have to get into a line of creditors to get your own assets.”
In almost all cases, plans are run by companies separate from your employer. “The record keeper doesn’t fold just because your employer might,” Fallon-Walsh said. “So you can still get information about your account. The record keeper’s name, phone number and maybe Web site are on your statements.”
Typically, a second financial firm has custody of your assets.
Even if your employer goes through a rough patch, you can check with your record keeper to confirm that your 401(k) contributions make it into your account.
“By law, your contributions are not supposed to be mingled with company funds,” Fallon-Walsh said. “The law requires it to be put in your account as soon as practical.”
Silver Lining
If your employer’s problems get bad enough to force it to terminate your 401(k) plan, there’s a silver lining. “If you’re not fully vested in your company match yet, you become fully vested when the plan terminates,” Fallon-Walsh said.
If your plan terminates, you’ll get a chance to tell the plan where to directly transfer your assets. That’s almost certainly into an IRA.