In an age where virtually every one of life's biggest expenses are covered by “expendable” company benefits, many investors and employees alike are growing more concerned over their financial future – with good reason. 1.2 million jobs were shed in the first two months of 2009, and the trend is not expected to buck. However, the good news is that most future retirees and savers will be unaffected, at least in their retirement savings, if they were to lose their job.
Untying your job and your golden years
The popularity of 401k programs has tied many people to their job. The good news is that the overwhelming majority of 401k programs have little exposure to your employment, as long as you selected diversified stocks. 401k programs by-in-large are kept with unrelated financial firms and are not tied to the financial good standing of your employer. However, you may need to worry about the possibility of bank failure; retirement accounts are protected by the SIPC up to $250,000; in most cases, this may not be enough if you're nearing retirement and have one million in your 401k.
Pension programs are immune to bankruptcy
Pension programs that pay a percentage of your pre-retirement wage every month are protected by accounting rules. Currently, pension programs and future benefits for retirees are kept off the books of businesses and protected against bankruptcy and loss. Check with your employer and see if your current pension program is a qualified program, which would be a pension that is protected against loss by a private insurer. In many cases, the PBGC or Pension Benefit Guaranty Corp., will back the value of your pension to the tune of $54,000 per year. Though this may not be enough to cover the full payment of several high earning fields, it’s a respectable wage and enough an income for most people, even if it means trimming down on your standard of living.
How to protect yourself
The first step is to make sure that all of your information with your current and former employer is 100% accurate. In the event that your pension gets taken over by an insurance company, they'll need to contact you. And since you will have lost your job and no longer make the daily trip to the workplace, contact may be more difficult than you think.
The human resources department at your current employer can tell you if your information is up to date, and they can also give you information about the company that backs your pension for further due diligence on your own.
Insurance assets are fly-by-night
If you've ever purchased a home with a mortgage, you know there's a huge market for secondary financial assets. Many insurance companies write the plan, but then sell the policy to someone else. In many cases, you'll never know the transaction even took place. The best bet is to make consistent contact with the human resource department annually to know who is backing your pension.