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RETIREMENT PLAN SECURITY INSPECTION
from: Ken MorrisRETIREMENT PLAN SECURITY INSPECTION
Given recent events in the news, many employees have begun
wondering what would happen to their 401(k) dollars if their
company were to go into bankruptcy, out-of-business, or was
merged or acquired by another firm. This is a question that few
employees think about when making contributions to their company
retirement plan. Yet, in the economic environment of today where
corporate closings and restructuring are not uncommon, it makes
sense to know what level of safety exists.
Retirement plans are managed exclusively for the benefit of
participants by plan officials called fiduciaries and trustees.
A fiduciary is any person who exercises any discretionary
authority or control over the management of the plan or its
assets, or any person who is paid to give investment advice
regarding plan assets. A trustee has the responsibility of
collecting and holding plan assets in trust for the
participants. The obligations required of fiduciaries and
trustees means that they are ultimately responsible and held
accountable for the safety of the participants' money.
It is important to know that there are laws specifically
designed to protect the interests of qualified retirement plan
participants and their beneficiaries. The Employee Retirement
Income Security Act (ERISA) was passed in 1974 to specifically
protect the retirement plan assets of qualified retirement plan
participants. For defined contribution plans - such as 401(k)s -
the Department of Labor (DOL) and the Internal Revenue Service
(IRS) also oversee various rules and regulations to enforce
fiduciary compliance, participation, vesting (ownership) and
funding standards.
Under the various rules of ERISA, benefits under a 401(k) plan
are protected from creditors if a company goes bankrupt. No
matter how much a struggling company may need access to funds,
they cannot use plan assets for such purposes as buying
equipment, paying rent or paying creditors. Your retirement
dollars are held "in trust" for your benefit - not for the
benefit of your company.
Participants are always 100% vested in their own contributions
to a 401(k) plan. While it usually takes several years to become
fully vested in any employer contributions, if a qualified plan
is terminated, the employees immediately become 100% vested. IRS
approval must be received before any qualified plan can be
terminated. Once approval for a termination is obtained from the
IRS, the full amount of plan assets are distributed to plan
participants.
If you would like to know more about ERISA, or if you require
more general information regarding qualified retirement plans,
such as a 401(k) plan, contact your financial advisor. After
all, the more you know about your retirement plan, the more
secure you are likely to be upon retirement .
About the author:
Fearing the American worker is being left in the dark, Mr.
Morris, a fee based Investment Advisor Representative with
Raymond James Financial Services, Inc., helps
most out of their retirement plan.
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