Are the 401K accounts insured?

[sd]

Looking for some guidance here if anyone knows ...
My employer sponsored 401K account is held through Principal Financial Group
Insurers have been having a tough road- Look at AIG as an example.
Principal has been downgraded to a strong sell by GS, and has significant commercial real estate exposure -
They have gone to the gov't looking to get capitol.

I specifically asked my account advisor -one Jason Earnest-
If the accounts were insured in some way, and would a financial problem for principal be able to affect my 401K other than my investment strategy.

I didn't get a specific answer to my questions- I got a link to a PR News release by the chief executive citing the company's strengths.

This seems extremely evasive and I'm concerned.

My wife and I have the majority of our 401Ks in a money market fund- with a small amount in diverse mutual funds they offer.
If Principal should end up Bankrupt , what would happen to our 401K monies? I realize the various funds would likely be sold to meet redemptions, and investments within them would suffer-What about the money market funds? Are we at Risk here that if this company goes bankrupt , we would lose some or all of our monies?
I don't take anything for granted - If we are at risk should Principal fail, I will try to withdraw my 401K and roll it over to an insured bank .
Thanks for any insight- Copy of my e-mail to Mr Earnest follows:
SD


Here's some more information that i have been provided by the managing director of Principal Financial's Raleigh office Craig Maples...



www.desmoinesregister.com/article/20081121/BUSINESS/811210376





Jason T. Earnest

Partner

919.256.3635 Direct

919.256.3739 Fax

919.256.3600 Office



Home Office: Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800-247-1737, member SIPC. Principal Life and Princor are members of the Principal Financial Group(R), Des Moines, IA 50392.


Hello Jason,
In these troubled times, I'm sure you've been asked this many times-
My employer- Bordeaux Construction- and I have our 401k accounts with Principal.

Principal Financial has been downgraded by Goldman Sachs to a SELL citing high exposure to commercial real-estate and over-all weakness.etc.
I only caught a portion of this. Market forces are at work , and fundamentals don't mean much these days.
Today the market has broken down to 12 year lows.
The immediate future doesn't look to have a catalyst to propel the market higher.

Today no one can discount what may possibly happen- Just look at AIG as the example.

I want to know what would happen to my 401 K account, should the unthinkable happen to Principal-Like AIG.

Are the 401K accounts insured - Like the FDIC does for certain Banks up to $200K?

And,
Other than sustaining a market loss due to my investment strategy, is there any way a financial problem for Principal could affect my IRA account?

Thank you in advance,
Kevin and Lois Sowter








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[dg]

sd:

The short answer is that only your contract paperwork knows for sure. Short of that, only the account custodian agent (Principal) knows. But the answer is probably yes. Were I you, I would keep after the custodian agent until provided the answer you seek in writing.

The clue to the answer to your question lies in the info on the letter: "Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800-247-1737, member SIPC. Principal Life and Princor are members of the Principal Financial Group(R)" Any member SIPC is required to insure securities accounts to a high monetary figure (my unreliable memory says $175,000).

background info ......
A 401k is more of a tax treatment than anything else. It is basically a partnered relationship between you and your employer to put aside pretax money as investments not subject to taxes prior to withdrawal. In this relationship the company does some degree of matching the contribution of the employee with use solely of company stock. There is usually some lag time contracted into the agreement before which the employee can cash out of the matching funds (company stock) portion following deposit. And there are big penalties for ealry withdrawal in general. So should you find yourself withdrawing for any reason, try to find ways to roll the money over into other IRA type accounts within the time window.

However, the company has no access to your funds. Even if they go bankrupt they cannot touch what is yours. (However, should they go bankrupt, what you hold in their stock becomes worthless -- that's the gotcha). They have no power other than that of custodian of your 401k account. Should they touch or have failed to deposit funds as contracted, they would be criminally negligent and suable for damages (prior to declaration of bankruptcy).

I am not a lawyer nor a securities nor tax expert; but I once served as agent to a securities firm for which I needed and had all required licenses. Needless to say, one studies securities laws in order to pass said exams. I was never a fan of 401ks. It sounds good to get matching funds in a tax deferred account until such time as the company starts to go down the tubes. Then you wish you had set up IRAs instead.

Here in your case, it is the custodian agent that might go down. I assume that your company is not otherwise in jeopardy. I therefore expect your account to be insured up to the SIPC account limit -- whatever that turns out to be.
dg

[sd]

Thanks for the info DG, that's somewhat reassuring; but as you noted, I will still try to get a specific answer from my Principal advisor.
If I don't get that guarantee from him in writing, I will rollover my monies to a bank -in the qualified IRA rollover.
I'm not concerned with my employer- pers-se- their match is not in stock, it's 30% cash to my $1.
The spectre of Principal seeing huge redemptions and having to sell/close funds to pay those redemptions is a possibility. Things have changed in a year's time to where the unimaginable may actually need to be a consideration.
Thanks again, SD

[sd]

RE: My Concerns are unanswered per 401Kþ

The retirement plan is a SIMPLE IRA retirement plan and not a 401k. The same tax rules apply to contributions.



The Simple IRA retirement plan is held at Principal Mutual Funds which is not a broker dealer.



On Principal Fund accounts:

1) There isn’t SIPC Insurance on those accounts

2) Client’s accounts are all separate holdings so they would still have their money even if the company goes bankrupt

3) There isn’t insurance for any company that doesn’t have their funds on a B/D platform as SIPC insurance is B/D only





Jason


Home Office: Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800-247-1737, member SIPC. Principal Life and Princor are members of the Principal Financial Group(R), Des Moines, IA 50392.




--------------------------------------------------------------------------------
From: kevin sowter [[e-mail]]
Sent: Sunday, November 23, 2008 6:51 PM
To: Jason Subject: RE: My Concerns are unanswered per 401K


Jason,
Thank you for the link to the article, but it did not address my specific questions nor did it alleviate my concerns. I'm sure this is a policy procedure- please forward my e mail to Mr.Maples if you are not allowed to reply specifically.

Are our sponsered 401K accounts specifically insured by the SIPC which Primcor Financial Services is a member?

and, Other than sustaining an investment loss by my own investment strategies, is there any way that
a bankruptcy of PFG would directly affect my 401K account and assets?


These are 2 basic and Naive questions. I would like a specific answer to each and not a link to a PR release.

I know a bankruptcy of PFG is unlikely, but it is following directly in the footsteps of AIG market wise-Today a $1.50 stock.

While the stock was above 60 a year ago, it touched $7.50 Friday. If it goes below $5,some larger institutions will be forced by their rules to sell the shares-regardless of the contained value within.

This could cause a cascade of additional selling and push the price down lower.

To think this is not a possibility, is unduly optimistic and naive. I don't view the article's point that going for financial assistance is a measure of credit worthiness.

If I cannot get specific answers reassuring me the 401K monies is not affected by the unlikely but possible bankruptcy of PFG,, MY wife and I will look to transfer our accounts without delay.
.

Following his e-mail response, I feel reassured I have control of our financial investments and not linked to the future of the Insurance company. This also illustrates how little I understood - I always referred to my '401-K' account- which I don't have.
Message here is to know exactly what you own and it's plusses and liabilities! SD