Question: The company that manages our 401k plans for my employer has had its rating downgraded by S&P recently due to concern about making its debt payments. Just before the turmoil in the markets, I changed my investment strategy out of stock funds and moved it all into a product touted as a no risk fund, basically a low, fixed rate deposit product with them. My question is two-fold: First, is there any government insurance for my 401k funds that is similar to the FDIC insurance for normal savings vehicles? Second, if there isn't, and I remain employed where I am, is there any way to transfer my funds from the 401k account to a traditional IRA account covered by the FDIC without incurring a tax penalty? My employer is doing fine and still providing matching funds, so I would consider moving the funds only if the rating continues to deteriorate. My account has approximately $130k on deposit and I am 53 years old. Thanks! Denise, Orange, CA
Answer: To your first question, there is no FDIC insurance coverage or its federal equivalent when it comes to the money in your 401(k) plan. Your money is at risk to what happens in the market. That said, there are multiple layers of protections surrounding your 401(k) to make sure that the account is safe. For instance, pension law requires that retirement plan money is kept separate from your employer's business assets and the money must also be held in trust. So, if your employer went belly up creditors can't get at the money and it is safe.
To your second question, in general you can't take the money out of your employer's plan and roll it over into an IRA until you stop working there. Then you can--and should--do what's called a rollover IRA. But since regulations give plan sponsors a great deal of flexibility when it comes to plan desgn you should check with your human resources folks just to make sure.