What happens to your 401k when a company goes bankrupt or is bought out?
ERISA protects your 401k assets against bankruptcy. It also ensures that your contributions are vested so that they don't get commingled with your employer's assets. It also ensures that your beneficiaries are informed of your 401k plan's status.
ERISA protects 401k savings from bankruptcies
Your 401k is protected by federal law, which is called ERISA. The Employee Retirement Income Security Act requires companies to properly fund their pension plans and keep the funds separate from business assets. This way, they can't be seized by creditors if a company files for bankruptcy.
The law also gives you the right to roll over your distributions to another qualified retirement plan. However, if your plan has a non-qualified designation, judgment creditors can seize your funds. Also, your state may have less-stringent laws that provide less protection for your money.
401k contributions are subject to a vesting schedule
When a company goes bankrupt or is purchased out, your 401k plan may change as well. Most of the time, your money will be automatically folded into the new company's plan, but you may have to look for other options. If you're not eligible for the plan, you may have to take your funds elsewhere, and they may not be able to be rolled over.
Nonqualified plans are a way for a company to avoid paying taxes on employee contributions. They typically have no legal limits on employee contributions and are much higher than qualified plans. In addition, contributions to nonqualified plans are tax-deferred and are not paid until the funds are distributed. However, since employees aren't technically owning these funds until they're paid, the money they've invested is a liability to the company until they're distributed.
401k beneficiaries are kept informed of 401k status
The first step in ensuring that a 401k beneficiary is informed of the 401k's status when a company goes bankrupt or gets bought out is to name a beneficiary. Depending on your situation, you can name your spouse, children, or other entities as your beneficiary. You should review your beneficiary designations periodically and ensure that they are up-to-date.
Beneficiaries are important for a 401(k) because if the owner dies, the funds will be passed to them instead of going through a probate court process. Naming beneficiaries can also help make the inheritance process easier and more affordable. In addition, beneficiaries can override instructions provided in a will if necessary.
If you have any questions, you can get a free consultation with Ascent Law LLC:
Ascent Law LLC:
8833 South Redwood RoadSuite C
West Jordan, UT 84088
(801) 676-5506
