401(k) funds protected by law
Given that 401(k)s are established only through companies, are these accounts safe from company bankruptcy, executive looting, mergers and other corporate ethics breakdowns?
-- Erin Egregious
I asked Professor John McFadden, the Robert K. Clark Chair in Executive
Compensation and Benefit Planning at The American College, about
your question. His comments are below.
Professor McFadden says: "Qualified
plan funds are highly regulated and are about as safe as any investment destination
can reasonably be. The fund must be held in a trust or insurance contract.
"Company access to the funds is prohibited through stringent federal (ERISA) rules
and each plan must make an annual report to the federal government. The funds
must have 'fiduciaries,' which include individuals handling funds and
the company sponsoring the plan. If there are unlawful losses, all fiduciaries
can be personally responsible to restore them. Penalties can also include
"These provisions have been in effect for more than 30
years and nobody in the business thinks that there are any significant loopholes
in the protection afforded.
for companies holding funds for too long before depositing them in participants'
401(k) accounts, this was an issue in controversy some years ago. It was
resolved by Labor Reg. 2510.3-102(a), under which employees' deferrals must be
deposited no later than the 15th day of the month following the payment or payroll
withholding of the funds. This labor reg is part of the same stringent ERISA
regulation scheme referred to earlier, so a company can be severely penalized
for not following this rule."
The Department of Labor publication, Protect
Your Pension - A Quick Reference Guide, has tips on what you
can do to monitor your retirement investments and what to do if
things go wrong, but you shouldn't let those concerns keep you from
investing in your firm's qualified plan.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."