Recent bank failures along with continued speculation of more to come has led many Americans to question the safety of their money.
The answer to "how safe is my bank account?" is fairly simple due to the Federal Deposit Insurance Corporation (FDIC). Created by the Banking Act of 1933, the FDIC was a key factor in restoring trust in the American banking system during the Great Depression.
Regarding American bank accounts, the FDIC’s Insurance rules protect your assets with the standard insurance amount being $250,000 per depositor, per insured bank and for each account ownership type. While there are additional rules to consider, especially for those with over $250,000 held in the bank, the FDIC Insurance provides stability in terms of bank accounts.
But what about employer retirement accounts; are my 401(k) and/or 403(b) savings safe?
The Employment Retirement Income Security Act (ERISA) requires plan sponsors to act solely in the best interest of participants and beneficiaries, and provide protection for the participants in retirement plans. In the unlikely event of the bankruptcy or dissolution of a 401(k) plan custodian, qualified plan assets that are held in custodial accounts should not be impacted. Plan assets are segregated into trust accounts that are fully protected under federal law from potential creditors of the sponsor and custodian.
ERISA provides that plan assets can only be used to provide benefits to participants and to pay reasonable costs of administering the plan. This means that creditors would be unable to access plan assets to recover any of their claims.
Keep in mind that money in qualified retirement savings plans like 401(k) and 403(b) plans are typically invested in securities such as stocks, bonds and mutual funds and are not FDIC insured.
However, Self-Directed retirement plans such IRAs (pre-tax and Roth), Solo 401Ks, etc., may include savings accounts, checking accounts and CD’s and are FDIC insured up to $250,000 as along as affiliated with an FDIC insured bank.
ERISA is meant to provide retirement plan participants with numerous protections by way of the fiduciary standards that plan sponsors are required to adhere to, e.g., acting in the best interests of employees in an effort to keep accounts safe and to give Americans peace of mind when accumulating qualified retirement plan assets.
If you have any questions about your retirement plan, please contact a member of our team at [email protected].
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.