Surviving a workplace bankruptcy |
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Finally, a company bankruptcy is likely to take a devastating toll on any stock options you've accrued or exercised.
Keith Newcomb, a financial planner at Full Life Financial
LLC in Nashville, Tenn., suggests speaking with a tax adviser if
you've paid income tax on exercised incentive stock options and
now hold shares that have become worth much less -- there may be
tax credits available to soften the blow.
3. Protect your retirement
Retirement plans are better protected, thanks in part to the Employee Retirement Income Security Act of 1974, or ERISA, which sets minimum standards and responsibilities for pensions and other retirement plans.
Your 401(k) or pension funds should be secure if they're
held by an IRS-approved custodian such as a trust company, says
Newcomb. Newcomb helps individuals navigate workplace-related benefits
and investments.
But ERISA's regulations don't protect your 401(k) earnings from the ravages of a stock market downturn. It simply means that a company bankruptcy will not result in the liquidation of your 401(k) account.
"In a nutshell, the money in a 401(k) belongs to the employee" rather than the employer, Newcomb says.
If you have a pension plan, you will still receive
at least some of your monthly pension payment when you retire. The
federal Pension
Benefit Guaranty Corp. ensures payment of some benefits even
if an employer goes bankrupt and can no longer fund the pension.
Read about your rights to funds in the event of employer bankruptcy
on the U.S.
Department of Labor Web site.
While federal law protects most of your retirement assets, it is possible for some money to stay in your bankrupt employer's pocket rather than your retirement plan.
For example, deposits to a 401(k) account could be in jeopardy if the business took contributions out of your paycheck but failed to deposit them in your 401(k) account with the retirement plan custodian.
Missing contributions will be another priority claim
in bankruptcy court, but you'll have to wait -- and possibly fight
-- for your money.
With this in mind, check your retirement accounts before the ship sinks. Deposits shown on statements from your 401(k) custodian should match your 401(k) contributions withheld from your paycheck by your employer, Newcomb says.
If you're laid off, roll over retirement funds to an individual retirement account, a new employer's plan or some other option as soon as possible.
"Cashing out your 401(k) plan to ensure you have cash on hand is imprudent and irresponsible," Baker says. "Despite any setback you're facing today, you'll still want to retire sometime."
If your retirement account was invested heavily in
company stock and your account is worth less than the amount you
and your employer contributed, you may be able to deduct the loss
from your taxes under some circumstances.
4. Decide whether to stay on
In some cases, your job may not disappear just because the company declares bankruptcy. Chapter 11 bankruptcy allows businesses to continue operations while they reorganize.
For example, Delta Air Lines filed for Chapter 11
bankruptcy Sept. 14, 2005. The company emerged from bankruptcy April
30, 2007, and relisted on the New York Stock Exchange by May 3 of
that year.
If your company is restructuring and intends to stay afloat, you may decide to take a chance and stay on. If so, remember that you'll need to be flexible.
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