Securing Your Nest Egg Against Layoffs

Americans lost 2.4 million jobs last year. And more workers are worried about getting a pink slip any day now.

This economic blizzard has many people in both groups -- as well as retirees -- wondering how safe their workplace retirement funds are.

If you're laid off -- or, even worse, your employer folds -- how do you get your pension benefits? How about your 401(k) account? Is there anything you can do now to protect access to workplace retirement assets after a layoff or bankruptcy?

In a season of bleak headlines, the good news is that at least limited safeguards exist for both traditional pensions as well as 401(k) plans.

And the more you know in advance, the easier it can be to maintain unimpeded access to your retirement benefits and unimpeded control over your 401(k) account.

No one protects you from market impact on investments in your account. But any difficulties faced by your employer, including bankruptcy or going out of business, should not interfere with your access.

"It's your money inside the account," said Barbara Fallon-Walsh, head of Vanguard group's institutional retirement plan services. "You are not a creditor of the company. You don't have to get into a line of creditors to get your own assets."

In almost all cases, plans are run by companies separate from your employer. "The record keeper doesn't fold just because your employer might," Fallon-Walsh said. "So you can still get information about your account. The record keeper's name, phone number and maybe Web site are on your statements."

Typically, a second financial firm has custody of your assets.

Even if your employer goes through a rough patch, you can check with your record keeper to confirm that your 401(k) contributions make it into your account.

"By law, your contributions are not supposed to be mingled with company funds," Fallon-Walsh said. "The law requires it to be put in your account as soon as practical."

Silver Lining

If your employer's problems get bad enough to force it to terminate your 401(k) plan, there's a silver lining. "If you're not fully vested in your company match yet, you become fully vested when the plan terminates," Fallon-Walsh said.

If your plan terminates, you'll get a chance to tell the plan where to directly transfer your assets. That's almost certainly into an IRA.

The plan may just send you a check for the balance. In that case, you have 60 days to deposit the money into an IRA. If you don't meet the deadline, the IRS will treat the money as taxable income.

If you have an outstanding loan from your 401(k) account, it becomes due when your plan closes or, typically, if you're laid off.

You'll have 60 days to come up with the money and repay yourself by putting it into an IRA. Otherwise, it's taxable income.

Certain rules apply to traditional pension plans too. For one, a layoff should not interfere with your ability to collect benefits that are due.

If your employer folds? Most private companies have so-called qualified plans. That means if your employer and its plan close, the Pension Benefit Guaranty Corp. takes control of the plan.

The PBGC will pay you up to $54,000 in yearly benefits.

"The PBGC bases payments on benefits you've earned," said Bob McBride, vice president of Diversified Investment Advisors, based in Purchase, N.Y. "It won't pay you for benefits you haven't earned yet if, for example, you're laid off before earning full benefits."

The most important precaution you can take is to make sure your current or former employer's human resources department has your correct address and identification information, such as Social Security number.

"Your plan may have been with a company that was taken over. And maybe that company was also later taken over," said Ethan Kra, worldwide partner and chief actuary, retirement, of consulting firm Mercer.

If you don't receive annual reports from your plan, contact it.

Matching Calculations

While keeping in touch, check to make sure the company's calculation of benefits matches yours.

If you think there is no successor plan, contact the PBGC. Make sure the agency has your contact information.

If you do get laid off, get the most recent plan statement. In addition to showing what benefits you're entitled to, it will have the plan's name, address and identification number.

"That will make it easier to track down your benefits if you need to make contact with it or the PBGC years later," Kra said.