It seems that when companies fail, board members are rewarded while individuals who are supposed to receive retirement or protection are left holding the bag and get little or nothing.
It is frustrating and frightening, but in such cases, a little planning and due diligence can do a lot to protect assets, even if a financial intermediary, bank, or pension fund fails. This is because there are three main institutions specifically designed to protect consumers when these entities fail.
They will not help you if the market drops and you lose money (that is the risk you take when investing your money). But if the institution holding your funds fails, it can provide a lot of protection for those relying on their money when they need it.
Asset Protection for Brokerage Accounts
The Securities Investor Protection Corporation (SIPC) is special insurance for brokerage firms. The key to getting protection from the SIPC is to ensure that any brokerage firm you use is a member, as they only protect member firms.
If you have an emergency fund or retirement account with a member firm and the brokerage fails, you are guaranteed protection up to $500,000.
However, there are circumstances where this protection may not be guaranteed, and it’s important to be aware of that. If the firm is engaged in improper trading and you do not have documented records of complaints, your money could be lost.
The government places the responsibility for trading squarely on the individual who executed the trades, not on the brokerage firm.
Sometimes, people also find themselves in a situation where they have to sue the SIPC to force them to provide the promised protection. This is not an uncommon situation as it may seem. For this reason, it is wise to ensure that any brokerage firm you work with is not only a member of the SPIC but also has an excellent reputation and solid track record. This can help protect your assets, as if the firm does not fail in the first place, you won’t have to file a claim.
Asset Protection for Bank Deposits
Bank deposits have more straightforward and easier-to-aggregate asset protection than brokerage firms. If a bank deposit is insured by the Federal Deposit Insurance Corporation (FDIC), your assets are insured up to $250,000 per person per account, fully backed by the federal government.
If your bank fails, the federal government will step in and try to find a healthy bank to take over your deposits. If that does not happen, the FDIC will sell the bank’s assets and make payments to you for the insured amount.
It is important to note that the FDIC does not cover any type of stock market investments, even if bought and sold at the bank.
Finally, bonds and treasury bills are protected by the U.S. government even if the bank from which you bought them fails. Even with FDIC insurance, it is good to conduct thorough research on the bank you plan to deal with to ensure it has stable financial strength.
Asset Protection for Pensions
This can be a bit more complicated. There is a pension protection agency called the Pension Benefit Guaranty Corporation, or PBGC. However, many small companies with fewer than 25 employees are not covered by the PBGC. In this case, if the employee’s pension plan goes bankrupt, there is no protection for workers.
However, the PBGC covers pensions for about 25,000 private companies as protection if they cannot fund their own pensions, and it has a track record of fully funding pensions when a retirement plan goes bankrupt.
You can find out if your pension is protected by the PBGC from your human resources department.
Conclusion
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It is important to understand the various agencies that protect your assets in the event of a bank failure, retirement, or financial brokerage firm issues. But it is equally important to be active in planning for your future and to exercise due diligence in wherever you place your valuable money.
This is the best way to protect yourself.
Source: https://www.thebalancemoney.com/asset-protection-when-brokerages-banks-or-pensions-fail-4582907
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