With the turmoil in the financial services sector, you might be concerned about the safety of all that money you’ve allowed to be deducted from your paycheck and invested in a 401(k) or other retirement account.
The Federal Deposit Insurance Corp. guarantees up to $100,000 for your bank account, the Securities Investor Protection Corp. provides up to $500,000 in cases of missing assets from a brokerage account and even traditional pensions are backed by the government’s Pension Benefit Guaranty Corp., but who’s watching your 401(k) funds? That’s the burning question for this week.
Q: What safety measures are in place to protect the money I have invested in my company’s 401(k) account?
A: The federal government has established rules for the people running your 401(k) plan, whether it’s company officials — common in small companies — or a provider working with your company to administer the retirement plan.
The Employee Benefits Security Administration, a division of the U.S. Department of Labor, is responsible for protecting pensions, health plans and other employee benefits held by about 150 million workers.
EBSA often files lawsuits to recover money taken in cases of fraud or theft from 401(k) accounts, and other federal agencies file criminal charges when necessary to recover stolen funds.
The government averages about 14 criminal indictments a year and has closed an annual average of 1,100 civil cases over the past seven years involving 401(k) accounts. During that period, the government has recovered an average of $50 million a year from 401(k) misconduct cases. Through March, the Department of Labor says it has recovered $6.7 million, obtained five criminal indictments and closed more than 400 civil cases with violations this year.
Assets held in your company’s 401(k) account are not insured in the way the government-run FDIC protects bank accounts or the industry-run SIPC protects brokerage funds.
Government regulations do require 401(k) funds to be held in a trust separate from their employer accounts and from the companies that manage 401(k) plans. The trust funds are overseen by investment managers, who must carry insurance designed to help protect a company from a fraudulent loss due to embezzlement or other misconduct.
David Wray, president of the Profit Sharing/401(k) Council of America, a nonprofit trade association said the regulations have been set up to protect employee money in 401(k) accounts. Even during the current shake up in financial services companies, he said workers shouldn’t worry that there money is at risk.
“The money that is in 401(k) plans is in a trust and it’s safe and 401(k) participants can be absolutely 100 percent confident that their money is not threatened by any of the things currently happening,” he said.
Assistant Secretary of Labor Bradford P. Campbell, an EBSA executive, said in a statement Monday that retirement plans are safe even when an employer files for bankruptcy protection.
“Federal law requires that pensions, 401(k) plans, and other retirement funds be kept separate from the employer’s business assets, so they are secure from the company’s creditors,” Campbell said. “Exactly what happens in the event of a bankruptcy will depend on the type of benefit plan involved, and whether the employer is reorganizing or liquidating in bankruptcy.”
——— On the Net: Department of Labor:
