Thrifty Spending Issue 100: Did You Know…

When an employer goes out of business, your 401(k) plan doesn’t go down the tubes with them. The company doesn’t own your 401(k) and it can’t be used to pay their debts.

Any company that considered its employees’ 401(k) plan money “their property” would be guilty of theft. So, if you know of people who have lost money that way, you should suggest they contact authorities immediately.

It’s very unlikely that one will lose their 401(k) to company theft. But that’s not to say that there’s no risk in the event an employer goes under. There are two.

The first risk is the value of the investments held in your 401(k) could drop, especially if you own stock in the company you work for. your employer may have matched your contribution to the 401(k) plan, but invested the match in company stock. In fact, many companies will only offer company stock as their contribution. If the company is having financial troubles, that stock could obviously decrease in value.

To minimize this risk, you should consider selling the company shares as soon as possible. The 401(k) plan administrator will be able to tell you how long you must hold them. If you think that the company may be having trouble, you will want to consider selling any shares you can and reinvesting in something more secure.

If your employer encourages you to invest in company stock, generally you should just say no. The reason is simple: If something happens to your employer, you could lose both your job and your savings. It’s happened before with companies like Enron.

If you do leave the company, take the 401(k) with you. You are not obligated to leave it under the company’s oversight. You can roll the proceeds into an IRA and eliminate any potential bankruptcy problems with your former employer.

The second risk associated with a 401(k) is bankruptcy. If a company goes bankrupt, the 401(k) plan for that company is said to be “orphaned.” An orphaned plan is one where the sponsor and fiduciary have abandoned the plan.

The employee’s money is still in the plan. But without the fiduciary and sponsor, it’s not possible for the employees to get at the money. The same problem can exist when a sole proprietor dies without leaving written instructions as to who succeeds him.

 Fortunately, there’s a way out of this wilderness. The Employee Retirement Income Security Act of 1974 (ERISA) governs 401(k) plans. If a plan is orphaned, the U.S. Department of Labor (DOL) is responsible for protecting the assets. So far, they’ve guarded more than $200 million.

Naturally, the trick is getting new sponsors and fiduciaries in place as soon as possible so you can move your assets. Don’t wait for the DOL to contact you. Usually they find out about an orphaned plan when a participant in the plan tells them about it. You can call the Department of Labor’s Employee Benefits Security Administration toll-free at 866-275-7922.

Also, check with the plan administrator or your union. It is possible that the plan will be terminated and all of your money will be distributed to you. Or a new administrator may be assigned without the DOL getting involved.

The bottom line is that your 401(k) account is like any other investment account. You need to understand the risks and manage them to fully protect your money. But if someone tries to steal your money, it’s simply illegal.


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Thrifty Spending Issue 100: Feature Article

Do you own a clunker? Does it guzzles gas and makes strange noises.  What if you got into your car, turned the key, and it made no noise. What if you had to have it towed? Now you have the expense of fixing the car, plus towing it!

Did you know it is more expensive if the tow involves having to cross county lines? 8 miles of towing could equal $100.

Plan ahead! Cheaper roadside assistance is available. In fact, you may already have it.

Some auto insurance companies, credit card providers, and auto manufacturers offer the service (basically) free to their customers. If you don’t have it, you can add it onto another service or pay for a standalone car club. Here is what you need to know…

1. Automakers

Some new and used cars come with a warranty that covers roadside assistance. The coverage varies, but you can typically use it if you lock yourself out of the car, run out of gas, or need a tow. has a list of roadside assistance coverage by manufacturer. There is one caveat – they may only tow your car to the nearest dealership.

2. Credit card companies

Some credit card companies (like Bank of America) offer roadside assistance free. There may be a limit on the number of towing miles or other exclusions, so call and ask before you use the service.

3. Auto insurance providers

If you have comprehensive and collision auto insurance, you can add roadside and towing assistance to your plan. While the cost varies depending on your location and the type of car you drive, these are the estimates I got:

  • Progressive – $3 per month
  • Geico – $1.83 per month
  • State Farm – $4.10 per month

4. Wireless service providers

While some wireless providers don’t offer roadside assistance, most of the major carriers do. You get towing (distance limits may apply), locksmith assistance, tire changes, and gas service. Here are the costs:

  • AT&T – $2.99 per month
  • Verizon Wireless – $3 per month
  • Sprint – $4 per month

5. Auto clubs

These standalone services require a membership. Here are the rates:

  • AAA – The granddaddy of auto clubs, the American Automobile Association has three membership tiers. Basic membership gets roadside and short-distance towing. As an AAA Plus member, you can tow up to 100 miles and receive lock-out assistance. Premier members get up to 200 miles of free towing and 24-hour concierge service. The cost of each plan varies depending on where you live, but they range from under $50 to more than $130.
  • Better World Club – The BWC is an auto club with an environmentally friendly concept: You can purchase roadside assistance for your bicycle and get discounts for renting hybrids – but you’ll have to pay more if you own a gas guzzler like a Hummer. Basic membership costs $55.95 per year. Premium membership costs $89.95.
  • Good Hands Roadside Assistance – Not really an auto club, but Allstate’s program is open to everyone. There are no annual fees, but you’ll pay per use. Towing costs $75 for the first 10 miles and $3 per mile after that. If you need another service (like a tire change), it costs $50.

Finding the best plan

Roadside assistance programs come with restrictions, and sometimes the cheapest plans aren’t worth the limitations. Before you sign up, ask these questions:

  • Does the plan cover the car or the driver? If your spouse or teenage driver takes your car, you need them to be covered under the roadside assistance plan. Making sure the car is covered no matter who is driving is the easiest way to do this.
  • Am I covered in other vehicles? If you have a rental or borrow a friend’s car, you want to know you’re covered when the tire blows.
  • What are the signup fees? Most auto clubs have them. For example, the Better World Club charges a one-time $12 signup fee.
  • How many tows are allowed per year? If you only get one tow, it may be cheaper just to pay for it outright and skip the membership.
  • How far can I tow? This is the biggest restriction I found. For example, with a basic AAA membership, you can have your car towed 3 miles max. Any further and you’ll pay extra. Personally, I’ve never been lucky enough to break down within 3 miles of my house or my mechanic.

In the end, it may be worthwhile to add roadside assistance to your insurance policy and sign up for Allstate’s Good Hands program as a backup, it’s free.


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