Sage advice from many experts and individuals is to never leave an old pension or retirement account or 401k at a former company. Minimally, the account owner should roll it over to a personally owned IRA account. The main reason for this is that no one wants to have their account held up in some financial chaos by the selling of the company, or the failure of the company, or a change in retirement account handling by the company, or any other craziness by one’s old company. It does not matter one ounce if the person’s account is fully protected away from the company, one does want to be mixed up in any former company activities. Once out, be fully out. The main reason for having an IRA or a 401k is that the individual who owns the account is fully protected from anyone other the individual from managing that account. The main reason that a company engages a financial management company like Fidelity for IRAs and 401k accounts is to give its employees a sense of safe haven in the unfortunate event of the company falling into financial difficulties. When a company files for bankruptcy loss of employment and or loss of employees are very likely occurrences. In either situation the company cannot list the employee IRAs or 401k accounts as assets. These accounts could be listed as liabilities if company money is to be used to match some percentage of employee payments to the account(s) and if this payment is contractual in nature. There is no legal way that a company could avail itself of monies already paid to these accounts.
However, many a horror story exists out there. Many people related experiences where their 401k accounts were frozen when the company filed for bankruptcy for the duration of the bankruptcy until discharge. Many saw fees deducted from their accounts by the financial management company because the company failed to pay the management fee. [This is a very good single reason to not leave an account in a former company.] Some people noted that ERISA rules requirement continued payments of unvested benefits to employees while the company is in bankruptcy. The trustee and the employees and retirees can meet to discuss what to do going forward, especially if the debtor company seeks to alter the requirement to pay monies that the company wants to cancel. Trustees are not bound to manage the situation for the employees. That is the job of the bankruptcy court clerk and 401k plan administrator. The trustee can insist that these roles conduct themselves per FBL or face contempt charges. Current litigation results favor the employees against companies seeking to raid 401k accounts in whatever way, such as cancelling the plan unannounced and retaining benefit payments. The deciding circuit courts are referring to the “plain language” of FBL and rejecting “interpretations” of what Congress may have meant.
While a person who has left a company has the option to move 401k monies to an IRA. An employee in the company is essential stuck with a frozen 401k that the failing company would very much to liquidate. ERISA and the courts are protecting the employee as possible.