You just announced your good news. You received an exciting position at a new company. You are so thrilled to receive a new offer that you can’t contain yourself. You start making plans for your new office, thinking about your new responsibilities, and how you will fit into the new company culture. On a side note, you just might treat yourself to a few new outfits and of course, a few pair of stylish shoes to match. Why, because you tell yourself you deserve it and it is “needed” to make a good first impression. I get it, I’ve been there.
During all this excitement and preparation, have you once thought about what you were going to do with your old 401(k) or pension? I have spoken to women whom I’ve asked about their old retirement accounts and have been told that they didn’t want to deal with it until they were settled at the new job first. Or on the other hand, that they completely forgot about it. Then there is the comment “I figure it was good where it is so why move it.” My rational is these women may figure it is just one less thing to think about. Not realizing that generally once it is out of sight, it is out of mind. Are you one that has retirement accounts at an old employer? Why?
I was having a conversation with a friend of mine, when we began talking about work and what new was happening with her life. During the conversation, she shared with me that she had an old 401(k) at a former employer from years ago. I asked if she tried transferring it to an IRA. She told me that she couldn’t because her old company went bankrupt and she no longer had access to her funds. Of course, this brings up a good issue to discuss. What happens to your retirement when your company goes bankrupt?
Well because of the Employee Retirement Income Security Act (ERISA), it provides certain protections for employees such as requiring that retirement plan assets are held in a trust account, apart from the employer’s assets. This separation means employers may not use this money to fund business operations. As well as this keeps the money out of the hands of the employer’s creditors.
So you may ask, are there times when my funds are at risk? The answer is yes. Let’s say your employer declares bankruptcy but it didn’t deposit your current 401(k) contributions before declaring bankruptcy. You could lose that contribution. Typically, this should only affect one paycheck’s worth of contributions, since the Department of Labor has rules that require employee contributions be deposited in the trust as soon as possible. At the extreme, the deposit has to be made no later than 15 business days following the end of the month after the contributions were made.
The second is when an employer’s match hasn’t been deposited into the trust. Employer contributions (matching or profit-sharing) may be deposited less frequently than employee contributions — quarterly, semi-annually or even annually. Employers are allowed to make matching contributions until their tax-filing deadline, which can be months into the next calendar year. If the employer hasn’t made its contribution to the plan before bankruptcy is declared, the contribution may be lost.
Don’t allow inertia to affect your retirement savings. Would you get a divorce from a former spouse and leave all your accounts with him under his control? I am sure that’s a resounding NO! Then, why would you leave your money at a former employer? I am a big believer if I leave, my money goes with me into an account I control. You may want to consider the same. Check out my next post to hear more about moving your retirement funds.