What happens if a company goes under?

If a company goes under, what happens to the workers? Am I correct in thinking that:

-You don’t lose your 401k, but you have to take a rollover and put the money elsewhere, because there is no longer a plan administered by your employer
-You don’t get severance, because they’re out of business
-You do qualify for unemployment benefits

What about health insurance? Are you able to go on COBRA, or is that not an option because the plan no longer exists because the employer is out of business?

In my experience:
-You don’t lose your 401k, but you have to take a rollover and put the money elsewhere, because there is no longer a plan administered by your employer Yes, you are correct.

-You don’t get severance, because they’re out of business Yes

-You do qualify for unemployment benefits Yes

**What about health insurance? Are you able to go on COBRA, ** Yes, you are able to get COBRA.

(I worked for a company that went out of business in 2001.

Thanks, Khadaji! I appreciate the info–especially ther part about COBRA.

I know more than a few people who got bilked out of a final paycheck when a company closed up, so just watch yourself if you think it’s a risk.

In 2001 I shut down the third largest record distributor in the United States. Everything happened exactly as has already been stated. We all kept our 401k. The company tried to steal our accumulated contributions, but I put the brakes on that plan. Nobody got severance, cuz the company was out of business. Some of us got unemployment. Everybody got COBRA. And everybody who worked there was bilked out of two weeks pay.

I know a guy who worked for 3DO when they went out of business. It was pretty much like what Washoe described. What really sucked is that if he had cashed his last check slightly earlier he would have got the money.

This happened to me last month - three weeks into July, the company was declared insolvent and we were all made redundant with no pay for the three weeks we just worked, no redundancy money, no notice or pay in lieu of notice - fortunately though, in the UK, the government reimburses all of these things (but only up to a limit, which is lower than I would be entitled to if the circumstances had been different and the employer had to pay it.

Thanks for the additional input. I kind of suspected that a disappearing paycheck would be the worker’s first sign. I suppose sometimes they try to hang on to you saying that it will show up and just to give them a few days, or whatever?

I don’t know how big of a risk this is, but I have to leave the possibility on the table. Layoffs seem likely, though. I’m kind of scared right now. We had layoffs recently, and I’ve learned they cut deeper than I realized. Given who they cut, and in reviewing everything else I know, I have a bad feeling about my chances of still being employed at the end of the year. Or if I am, I’m not so sure about early '09.

If it were a year from now, I’d be less worried. But I’m not quite positioned the way I’d like to be financially at the moment. I just sunk a ton of $$ into fixing up my house. Things I couldn’t put off any longer, like replacing the roof. I still have a cushion, but it’s significantly smaller.

If I lose this job, it’s not likely I’d pick up anything that pays what I’m earning now. In a year, that pay cut wouldn’t be a big deal. But if this layoff turns out to not be enough in this economy and they do another (or worse, go under), then I need a bigger cushion. I’m diverting everything I can to savings right now, but I’m reluctant to stop contributing to 401k. I only just started contributing to it again, and I like to buy while the market is down.

I just want one more year. One more year is all. But you know how life tends to have a twisted sense of humor about these things. Maybe I’m reading too much into it all, though, worrying that the greater security is going to be snatched away right before I reach it.

I hate this stupid economy.

You can lose out on the 401k if it’s based on your companies stock which is now worthless. Anything else would be untouched as it’s not theirs.

No, no company stock mixed up in all of this, thank goodness.

I’m sitting here at work really feeling like I don’t wanna be here anymore. I just wrote a long rambling post about that and deleted, because I realized I wasn’t asking a general question anymore and instead looking for opinions.

Anyway, I really appreciate the insight from everybody. Part of me wants to run screaming right now, but that’s not a good way to make major life decisions. I need to review what I do/don’t know about my situation, what my options are, and then think about what I want to do. Might start a thread in IMHO or MPSIMS at that point for opinions–there have been some recent threads that had me thinking, even before the layoffs occurred.

The Dope is a cool place.

See this is what I don’t get. If your company is going out of business, what are you waiting for? People to start pulling copper wiring out of the walls or ask you to shut the lights out when you leave?

Now is the time to start preparing for your job search. There is no point in staying one minute longer than you have to at a company with no future.

You actually may not even have to roll it over into something else.
I left a company that I had a 401K with that was run through Wells Fargo.
I just left the money where it was. The company went under 6 months later.
That was 2-1/2 years ago. The account is still active.
I guess I could roll it over into something else but it’s performing well (as well as the market at least) and haven’t had the urge to do so yet.

The place my brother works at has been going out of business for years. He still makes good money there and got a raise to stay on until they are close enough and will turn things over to consultants. I realize it’s a different situation but not every one is so immediate.

How did the company try to steal the accumulated 401(k) money? Was it employees’ money they’d deducted, but not yet remitted to the company that managed the 401(k)? or were they trying to steal all contributions even old ones? Or were they just trying to grab the company’s matching portion?

Typo Knig’s company switched to a different managing company a while back (for the 401(k) and, for a while, contributions weren’t getting credited to his account with the brokerage firm, for 2-3 weeks after payday. That was a little worrisome, but at least we knew the company couldn’t have raided money already remitted to the brokerage.

Well, I don’t know for sure that we’re going under. I’m reading the tealeaves, and I don’t want to make a hasty decision based on emotion. Everybody is scared right now, but we’ve been through lots of layoffs here before and the world hasn’t ended. There are some very good reasons to stay, not least of which is a substantial pay cut if I leave.

See, I actually was looking for work a year ago. I correctly read the tea leaves and knew that my old group would be elminated in the next layoff. That has now happened. I ended up finding an internal position, and my current group is more secure.

But there are some factors I’m not going to discuss in public that make me more concerned about this layoff. I now think going belly-up is a possible future. Not certain. Possible.

But you’re right, and seeing your post makes me laugh, because when I was walking to get lunch a couple of hours ago, I suddenly thought “Screw it. It’s time to plan my exit strategy and go for it.”

I’d rather take a planned paycut while I have time to shop around for a job I truly want, than to be faced with a forced loss of income and a scramble to grab whatever job I can get. You’re entirely right that I see no future here (whether or not we go belly-up), and I think I’m holding on so tightly to the income that it’s becoming a roadblock. I have some good reasons to feel fear about a job search–complicating factors I don’t want to go in to publically. But money and fear just aren’t enough to keep me here anymore.

That’s where our plan is, and that would be really nice. I’d rather not pull it–at least not unless it was the right move financially. Thanks . . . this is good to know even if I leave voluntarily, since I’ll have to decide whether to move the $ or not.

It would have to be the matching portions, wouldn’t it? Usually your 401k is with some financial institution like Wachovia or Vanguard and the company wouldn’t have access to your accounts.

It has nothing to do with immediacy. I generally assume people want to grow and progress in their career. It’s tough to do that in a company that isn’t growing and expanding.

Generally, you want to try to figure out if it is a short-term downturn at your company, an economy wide phenomenon like a recession or if represents a fundamental change in your industry.

If you have reason to belive things will get better, you might be better off riding it out. Switching to a new job in a down market is risky because you might not have the best pick of new jobs. You also won’t have seniority. On the other hand, if your company or industry is in a permenant downward spiral you need to make a move. You don’t want to be the last one standing without a chair when the music stops and the market is flooded with hundreds or thousands of people with similar backgrounds to yours all looking for jobs.

Exactly. This layoff is different from the others in that I feel like I’m being painted into a corner. I felt like that a year ago in my old position not just because of my company, but because of that particular type of work. It’s not a good field to be in any more if you’re in the US–in any company. I had to get out.

I took the internal position because it’s a different type of job with a somewhat more stable future. The experience has given me some marketable skills, so it was worth it. However, to stay with this particular company is to increase knowledge in an industry segment with fewer options. I will not significantly increase my general marketability by hanging tight. That’s ok if the company is solid and the money is good. Not so good if you start fearing the future.

Add to this that I think I might enjoy a completely different type of job altogether and am feeling a need to explore. My current position gives me some transferrable skills the old position didn’t. Staying here longer won’t significantly increase my ability to switch to a different type of work altogether–I’ve gained what I can gain on that front.

Some of my pay is based on my skills, but a good chunk of it is based on my knowledge of a particular industry segment. I know I can’t get this income if I leave the industry segment, but staying here won’t gain me anything in the long term. I was already thinking I’d want out in five years (and I was only willing to stay that long for the money). But I’d rather take a pay cut on my own terms. If I don’t, it could cost me a lot in the long run. And then there’s my sanity to consider. Feeling cornered is not a good kind of stress.

I’ll just have to figure out how to cope with taking the cut a year earlier than I’d like. And since job searches take time, it won’t really be taking a cut a year earlier than I’d like by the time I find something, will it? Unless I lose this job before I find another one, of course, but I have no control over that.

Incredibly, if a company stops depositing contributions to a 401k plan, it freezes the funds. The individual participants cannot draw on them, despite the fact that it’s their money. If the company then dissolves, the entire sum of all contributions ever made and all accrued interest is returned to the company in a lump sum. Since I had severed the company’s only source of credit, there were no funds available to deposit. The company in question was owned by two black cocaine dealers from Oakland who had ties to Death Row Records, and according to one person I talked to, directly to Suge Knight himself. If that money had fallen into their hands, it would have promptly vanished. I convinced the morons who were administering the plan that they would be sued to within an inch of their lives if they were to let that happen. Amazingly, they heeded my admonishments.

I went through this 2 years ago. Company needed to ship remaining product, liquidate retail stores, sell brands to highest bidders, etc. A number of us were given substantial incentive to remain for 9 months. I’ve since talked to others and found out this is not uncommon in bankruptcy situations.