Employer Bankruptcy: Is your 401(k) at Risk?

April 21, 2023

In chaos, everything appears to be a risk. In these recent turbulent times, it’s common for investors to start questioning what is financially safe and what is at risk. Particularly if your employer is going through a bankruptcy, as we have seen from many high-profile businesses over the past couple years, you might feel as if the ground is shifting beneath you.

An area of concern that we have heard from investors is about their 401(k).  The question I’ve heard most is “if my employer files bankruptcy, will I lose my 401(k)?”. There are two major issues to consider here.

First, 401(k) account balances are NOT an asset of the employer and therefore the employer and its creditors do not have rights to your vested balance. Yes, there have been cases of fraudulent activities and theft but a properly administered 401(k) plan, as the vast majority of publicly traded companies have, is not at risk of disappearing with the company.

BUT - this does not mean you may not lose value in your 401(k) account. A major area to consider is the impact the bankruptcy may have to your chosen investments. Do you own company stock inside the plan? What about the funds you own, do they invest in your employer’s stock? This is why we recommend proactively discussing your 401(k) investments with your advisor and understanding the implications of ownership and sale of employer stock.

Of course, if your employer is filing bankruptcy, there is the question of whether your employment will continue in the short or long-term. That may impact your eligibility to the plan and open other options for consideration. Talk to a qualified advisor and evaluate your plan.

The next topic I will discuss relating to employer bankruptcies is the impact to your stock benefits which can be of massive importance. Check back soon for more insights on that.


  • Tim Golas
    Partner, Spurstone