So your employer has declared bankruptcy and is going out of business. Does that leave your 401(k) plan in the dust? Don’t panic. Your 401(k) account is not held by your employer. By federal law, all 401(k) money must be held in trust or in an insurance contract, separate from the employer’s business assets. That means your employer or the company’s creditors cannot lay claim to the money.
As long as your 401(k) contributions have been regularly deposited in the plan by your employer, the money should be safe. By law, employers must deposit 401(k) contributions into the plan within 15 business days after the end of the month in which they withhold your contribution (7 business days for companies with fewer than 100 participants). If your employer didn’t deposit your contribution before declaring bankruptcy, you could lose that month’s contribution. Always check your 401(k) statements to make sure your employer is depositing your contributions in a timely manner. With many plans you can do this instantly online, without waiting for a statement in the mail.
The contributions you have made yourself are always safe. If you’re not yet vested, you may lose your employer matching contributions if the company goes bankrupt. And if the matching contributions are in company stock, those shares will be worthless in the case of a bankruptcy.