401k Resources

In previous posts, I have referred to 401k resources you should be aware of. As an investment professional, I highly recommend this website for keeping up with the latest product offerings for financial and investment professionals. The founders have been registered reps for over 20 years, and have extensive experience with all types of investments including annuities, and ETFs, among others.

401k Liability for Plan Sponsors

As a small business owner, I am getting a lot of questions from my employees regarding their 401(k) investments. I feel uncomfortable offering “advice”, but at the same time I want what is best for them. What is my responsibility in these situations?

With the recent market volatility, many employee’s are questioning their 401(k) statements and employers often find themselves in a quandary: They want to help their employees with their investments, but by offering investment advice, they open themselves to liability should the employee make an investment that results in a financial loss.

The solution was provided by the Pension Protection Act of 2006. The PPA allows plan sponsors and fiduciaries to appoint qualified advisors to provide investment advice. As long as certain statutory requirements are met, sponsors are not liable for investment performance resulting from that advice.

The Department of Labor describes a plan sponsor’s role as follows: “The duty to act prudently is one of a fiduciary’s central responsibilities… It requires expertise in a variety of areas, such as investments. Lacking that expertise, a fiduciary will want to hire someone with that professional knowledge to carry out the investment and other functions.” (www.dol.gov). Perhaps more importantly, having a trusted adviser means you can focus on what really counts – running your business!

Most 401k providers DO NOT offer this type of protection, since they are just salespeople. It is important to choose an investment firm that is a Registered Advisor, so you can get the investment expertise, and the fiduciary liability removed.

401k Plans - What Are My Risks?

With all of the news about companies going out of business, and banks being taken over, how can I be sure my money is safe? What happens to my 401(k) if my company goes out of business?

These are all very good questions. It's always important to understand the risk of your investments, but we don't usually think about them until economic turmoil is upon us.

Bank Accounts: Bank and credit union accounts, including checking, savings, and certificates of deposit, are insured against loss by The Federal Deposit Insurance Corporation (FDIC). This government agency has insured $100,000 per account holder per bank since 1980. The recent “financial bailout” signed by President Bush, has temporarily increased the coverage amount to $250,000 to help reassure depositors that their assets are safe.

401k Accounts: If your employer goes out of business, your 401k and other retirement accounts are protected by the Pension Guarantee Corporation. Your retirement assets are separate from your employer’s assets – they belong to you. They do not guarantee you will make money in your investments, only that the assets cannot be seized or lost as a result of failure by a company. However, if your retirement account contains company stock that stock would likely be worthless as a result of the company’s closure.

Also, check with your Investment Advisor to keep tabs on the status of your accounts. Any reputable adviser will happily show you the statements for your investment accounts. Unlike Hedge Funds, 401k accounts (and 529 plans) are heavily regulated already, so you can generally feel pretty safe that the investments are secure. Of course, they can go down in value, but at least you know that there is regulation backing the assets.