Ask Chuck: Is my 401(k) at risk?

Dear Chuck,

I am 46 years old. My company is closing its doors due to COVID-19. I have been adding to my 401(k) for 21 years. What do I do with it now?

Concerned About My 401(k)

Dear Concerned,

Thanks for the great question. Millions of people are facing a similar challenge. I will offer some explanation of the 401(k) program and some advice.

401(k) accounts are employer-sponsored defined contribution plans that function as tax-deferred retirement accounts. Employees who participate determine an amount to have taken out of their paychecks and directly sent to their 401(k) investment accounts. These may include mutual funds, exchange-traded funds, and target-date funds. Growth in 401(k)s have increased because pensions are less common.

According to Investopedia:

“More than 80 million workers actively participate in 401(k)s, with more than half-a-million different company plans in place, according to a January 2019 report by the American Benefits Council. Overall, a dizzying $5.7 trillion in assets are held within 401(k)s in the U.S.”

Types of 401(k) Contributions

●  Salary deferrals: the contributions you put in which are earned wages protected by law

●  Company matching contributions

●  Profit sharing

Federal law requires employers to keep 401(k) funds separate from company assets. This prevents creditors from gaining access to it. You should be able to keep most of the funds and move them to another type of account.

Three Scenarios Where Money is at Risk

1. Money is withheld, but a company closes or files bankruptcy before sending it to the 401(k) plan.
2. Closing or bankruptcy is filed prior to depositing matching or profit-sharing contributions.
3. Company stock in a 401(k) has no value if the company is deemed worthless.

Now What?

●  Rollover: move your 401(k) to an IRA account. If the 401(k) has been terminated and the employer no longer exists, no taxes or penalties will be assessed if done within sixty days. This can be easily accomplished through a qualified investment advisor who can manage the rollover for you.

●  Transfer: if you go to work for a company with a 401(k) plan. This eliminates the fees involved when using a broker to open a self-directed IRA.

●  Cash out: not recommended because you will owe taxes. Penalties can result if the money is not put into another investment account.

Pay Attention

Be sure to keep a record of your 401(k) accounts, all other bank or financial institution accounts, and important documents such as insurance policies, deeds and contracts. When there is turnover in the economy and moves like you are making now are happening more often, it is easy to lose track of transfers and financial accounts.

Millions of dollars are left unclaimed in everything from safety deposit boxes, bank accounts, savings accounts and retirement accounts each year. People simply forget they have the account or die without notifying their heirs of where the money was placed. It would be similar to having a storage facility that nobody ever knew about. All of your efforts to save are wasted which is poor stewardship.

The Bible reminds us to stay on top of the details: “Know well the condition of your flocks, and give attention to your herds, for riches do not endure forever; and does a crown endure to all generations?” (Proverbs 27:23-24 ESV)

Get Counsel

It is not uncommon for me to hear from people who are losing money in their investment accounts, especially those who are making passive investments in a 401(k) or 403(b).  Both of these accounts offer pre-packaged investment options so investors assume that making a quick choice is all that is necessary. Remember to do your homework on those choices and seek counsel from professional advisors or experienced investors who can help you with your asset allocation within your retirement accounts. 

Proverbs 15:22 (NIV) is a great investment principle to put into practice: “Plans fail for lack of counsel, but with many advisers they succeed.”

God bless you as you seek your next work assignment. Don’t forget, we offer career coaching services as well. Learn more here.