OK, you can stop holding your breath. Few workers need worry about losing their retirement savings because their money was invested by their employers in company securities or property, according to a new report by the General Accounting Office, the investigative arm of Congress.
The GAO studied 160,000 401(k) retirement plans of which only 2,449, or less than 2%, had investments in employer securities or property in 1993. But most of these plans let workers control their investment choices, and in only 756 plans did employers alone decide how to invest their workers' contributions.
"Although it is always possible for some employers sponsoring 401(k) plans to go bankrupt in the future, the potential for a large number of workers to lose benefits because their 401(k) plan is invested in a bankrupt employer's securities or real property is not widespread," according to the report.
While participants in employer-directed 401(k) plans always will be vulnerable to investment decisions over which they have no control, legislation enacted last year offers some protection. Starting in 1999, investments by such plans in employer securities and property will be limited to no more than 10% of employee contributions.
However, the GAO report notes this limit cannot always protect workers, such as when the company's stock price is declining and the value of employer securities drops below 10% of contributions. In those instances, the employer may use employee contributions to buy additional securities to reach the 10% level again.
In such situations, however, the employer is still subject to fiduciary standards laid down in federal pension law that would dictate whether the company could indeed purchase more employer securities, the report observes.
Moreover, the Labor Secretary has the authority to require 401(k) plans give participants information on their investments in employer securities and property.