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What happens to my 401(k) if my company goes bankrupt?

Your assets are protected by federal law, and you should be able to roll over your retirement account to an IRA or subsequent employer plan.
If your company declares bankruptcy, your retirement plan assets are protected under federal law—the Employee Retirement Income Security Act of 1974 (ERISA). The law covers all “qualified retirement plans,” which includes:

  • Defined contribution plans—401(k), 403(b), 457, and equivalent self-employment plans
  • Defined benefit plans—also known as pensions

The ERISA law requires retirement plan assets to be kept separate from a company’s business assets, so your retirement funds are secure from your company’s creditors.
In addition, defined benefit pension plans might also be insured by the federal government’s Pension Benefit Guaranty Corporation (PBGC). If your plan is terminated and cannot pay your pension benefits, the PBGC assumes responsibility up to a certain guaranteed amount.

Rules to remember:

If your plan is terminated, your company owes you all the benefits you have earned up to that point. However, keep in mind that certain rules still apply, such as:

  • Early withdrawal penalty—assessed for withdrawals prior to age 59½, unless you are separated from employment at age 55 or later.
  • Taxes on withdrawals—can be avoided if you roll over the balance to an IRA or subsequent employer’s plan.
  • Distribution requirements—can vary among plans; e.g., some require distributions at a certain age or after being separated from employment for a certain period of time.

Check with your company for rules surrounding your plan. You might also want to consult a tax advisor, as some distribution options could have tax consequences.

Next steps

  • Contact your retirement plan administrator for information on your plan’s rules.
  • Consult a tax advisor for information on how retirement plan withdrawals may be taxed.
  • Read the Department of Labor’s fact sheet on how bankruptcy can affect your retirement benefits.
  • Talk to a financial consultant at 877-476-2356 if you’re considering a rollover to an IRA.

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