According to the Employee Retirement Income Security Act of 1974 (ERISA), your employer sponsored retirement account should be safe even if the employer declares bankruptcy. ERISA requires that retirement accounts be fully funded and kept in an account that is separate from the employer’s other business accounts. Thus, retirement funds should be secure from a company’s creditors and continue to belong to individual employees.
It is important to know, however, that it is possible that the retirement plan will be terminated in a bankruptcy and that no future contributions will be made to the plan. If that happens then the employee is entitled to 100% of the money in the retirement account regardless of the amount of time that the employee has been working for the employer. Therefore, the employee is entitled to the money in the account even if he or she would not have been entitled to the money if he or she were to leave the job voluntarily. An employee may, however, incur tax penalties for the early distribution of the funds prior to retirement age. Employees should consult with their tax advisors and financial professionals in order to determine how best to handle the situation.
