Many employers today offer health savings accounts (HSAs), flexible spending accounts (FSAs), and 401(k) retirement savings accounts as part of their company group benefits. These types of savings accounts are a valuable part of an overall compensation package that employers use to attract and retain top talent. But the world business is uncertain, and companies may go under. What happens to your savings accounts if that occurs?
Can I Keep My 401(k) If My Company Shuts Down?
Under federal law, employers are required to keep your 401(k) funds separate from company funds, so business creditors have no access to your money. If your company is closing, filing bankruptcy, or changing ownership, you should be able to keep most of the funds in your 401(k). You can move your funds to another 401(k), an IRA, or another retirement savings account to continue building your nest egg.
Types Of 401(k) Contributions You Can Keep If Your Company Closes
401(k) accounts typically hold two different types of contributions:
- Salary deferral contributions: These funds are taken pre-tax from your salary and belong strictly to you. Neither your employer nor the company’s creditors are allowed to touch them, under the law.
- Employer contributions: Your employer may have either matched your contributions or made profit-sharing contributions to your 401(k). Employer contributions may be subject to a vesting schedule, by which you get to keep a greater portion of these funds the longer you are employed.
If your company withheld 401(k) money from your salary, then closed or filed bankruptcy before the funds were deposited, your contribution for that pay period may be at risk. Also, if your 401(k) plan held stock in the company, the shares become worthless if the company filed bankruptcy or shut down.
What Happens To My HSA Or FSA If My Company Closes?
If your employer files bankruptcy, the type of bankruptcy can affect your access to HSA or FSA funds:
- Chapter 11 reorganization usually means that the company continues operating under the court’s protection and supervision while reorganizing its financial affairs. In most cases, HSA and FSA plans remain in existence throughout the process.
- Chapter 7 means shutting down the entire company and liquidating its assets to pay creditors. In that case, you will lose your health insurance benefits, including your HSA or FSA.
Whatever funds you contributed are still yours. As soon as you learn that your company has filed Chapter 7, check on any outstanding claims and file new claims for any qualified medical expenses. The “use it or lose it” rule still applies in this scenario, only with a tighter deadline. HSA funds belong to the employee, not the employer. There is no “use it or lose it” provision with this type of savings plan.
What Should I Do About My Savings Plans If My Company Is Closing?
If your employer is shutting down for any reason, it may be in your best interest to speak with an experienced agent about your 401(k) or other employer-sponsored savings plans. Our agent can advise you on what action to take to best preserve your savings account funds.