There’s a popular aphorism that advises people not to put all of their eggs in one basket. That advice can apply to many different scenarios in life. From a financial standpoint, not putting all of your eggs in one basket could be advice that reminds you to diversify your investments and not rely on one business or industry to protect all of your financial accounts or investments.
However, putting all of your eggs in one basket may seem like exactly what you do when your employer offers you either a sponsored and matching retirement account or a pension as one of the benefits for your employment with the company.
In the event that the business fails, you could lose out on your primary source of income, and you may find yourself worrying about what will happen to your retirement account as well. Particularly in cases where the employer completely closes up shop or files bankruptcy, you may worry that your pension or retirement fund is vulnerable as a result.
Your employer doesn’t hold or manage the 401k or 403b funds
If your retirement is part of a 401k investment account, that means that the actual funds that you deposit and any matching amount that your employer deposits, goes into the account managed by the plan administrator. Many times, businesses cooperate with large financial institutions or brokerages to manage their 401k.
Your employer will not have access to your 401K funds. Additionally, retirement fund accounts have protections from claims by creditors of the employer in a bankruptcy, which means that they are not vulnerable to loss, liquidation, or seizure in a bankruptcy.
While a bankruptcy or restructuring effort might prevent your employer from making their most recent matching contributions to your account, the Employee Retirement Security Act (ERISA) protects the actual accrued balance of the account and your retirement.
Pension funds also have protection under the law
Unlike a 401k, a pension may be an account actively managed by your employer. It is only natural that you might feel worried about the loss of your pension if your employer becomes financially insolvent.
The good news for those worried about how an employer bankruptcy could affect their pensions is that one of the primary functions of ERISA is to prevent the loss of employee pensions and retirement security because of business failure. Even if your company borrowed or stole from the pension fund, there are government protections in place that will replenish those missing funds for retirees.