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URL:  http://boards.fool.com/ems79-you-wrote-my-original-question-was-30716725.aspx

Subject:  Re: how secure is the money in a 401k? Date:  6/3/2013  3:04 PM
Author:  joelcorley Number:  25042 of 25247

ems79,

You wrote, My original question was regarding #2, the entity that holds the stocks/mutual funds... in essence my question was, is there a government backed insurance that will make good on any securities they are holding in my account. It sounds like there is some sort of a mix of government and private insurances. To be honest, I don't know how much I trust private insurance to pay in the situation of major banking failure because the insurers may be sunk as well. The US Government (such as it is) the only one I truly trust, and mostly because they can print/borrow additional money on demand.

Regarding #3, I had thought about this aspect as well, but decided I don't know enough about the mechanics/pricing of Mutual Funds to ask a relevant question.


My understanding is that there is no official government insurance for fraud or default by a mutual fund company or a 401k trustee. There may be private insurance held by the trust or fund company though. And as mentioned, some companies like Fidelity might be considered too big to fail; but that's speculation and not an official government commitment.

Some 401k plans also contain self-directed brokerage options. The broker-held portion of the account should have SIPC coverage. SIPC coverage only guarantees you will recover the securities you held in the account at some future date. It does not guarantee when, nor does it insure against losses in those investments during that time. Finally, the brokerage is [or should be] a legal entity separate from the 401k trustee - even if they're both owned by the same holding company.

Finally, So my concern was mostly regarding scandal and internal screw ups at the brokerage that holds my accounts.

Does a broker actually hold your accounts? My employer uses Fidelity. My 401k-held mutual funds are not in a Fidelity brokerage account.

Here is Fidelity's web page concerning this topic. http://personal.fidelity.com/global/content/protecting-our-c... This should tell you what is covered and how. If you don't see your assets mentioned there, you should assume they are not.

Fortunately I'm pretty confident in Fidelity. Given what I know these days and if I worked for a small start up (again), I might be reluctant to contribute to a 401k if the trustee were fairly small. Of course even big companies experience fraud and some even collapse from mismanagement, so its not like I'm saying we're completely safe...

- Joel
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