What Happens to the 401k Plan If the Business Goes Bankrupt?

Post recession, my employees are worried about contributing to their 401k because they will lose the money if my business goes bankrupt. Is this right? – Angela Jessenthal- owns several boutiques in North Dakota

The fact that many small businesses did go belly up during the recession has made many employees fear for the safety of their employer sponsored retirement plans like 401ks. But your employees have no cause for worry. The 401k plan is an employee benefit plan and the government takes great care to ensure that this plan is not affected by the fortunes of the employing business.

Even in the unfortunate event that your business folds, your employees need not fear that their hard earned money and savings will be wiped out. The 401k plan is covered by the Employee Retirement Income Security Act of 1974, or ERISA. When a business goes bankrupt, the creditors can claim access to all of the business’s assets, except the 401k plan. The ERISA protects this plan from creditors so that none of the business’s debts can be met by funds out of this plan.

This means that your employees need not have any doubts or hesitations about making the maximum possible contributions to their retirement planning 401k even if the economy is declining and many small businesses are closing shop. Give your employees the ability to manage and track their 401k plan on their own by using a software suite like http://401ksolution.com. This will give them a greater degree of control over the plan and its funds and in turn, boost their confidence.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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