Cramer on Retirement: Defending Your 401(k)

NEW YORK ( TheStreet) -- If you think your company may go bankrupt, more than your job is at risk. Your retirement account may also be in jeopardy.

Bureaucratic snags, legal hassles, delayed deposits, frozen accounts and tumbling account balances can all mess up your retirement savings. Here's what to watch out for and what you can do to protect your nest egg if you think your company is failing.

You're Protected -- Sort of

Under the Department of Labor's ERISA laws, individual 401(k) accounts are protected from creditors. In other words, your employer can't use 401(k) funds -- your money or the money the firm may contribute in match dollars -- to pay debts.

But lawsuits surrounding the Tribune Company bankruptcy call those protections into question. Employees and retirees held millions of shares of the Tribune Company in the company's 401(k) retirement plan when the company went private in a 2007 leveraged buyout. The lawsuits seek the return of payments made to shareholders in the buyout including money that was paid to 401(k) account holders.

Readers of these columns know that I fought hard against this abuse of power by the Tribune owners, predicting that this travesty would end just like Carter Hawley Hale, a department store chain that also coerced workers into participating in a faulty buyout back in the 1990s.

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The Tribune case is still winding its way through the legal system. Many experts believe the Tribune situation is unique and that even if creditors get their way it won't necessarily impact the protections in place for other companies.

I question that judgment given that the Labor Department, which is supposed to be scrutinizing these actions, has now twice failed to protect workers from these dangerous incursions into your nest egg.

Even so, the Tribune case is yet another cautionary tale about investing too much in your company's stock.

"That's the first thing I worry about when I hear about bankruptcies," says Rebecca Davis, legal director at The Pension Rights Center, a nonprofit advocacy group.

Obviously if your company is tanking, your stock holdings are going to tank with it and bring down the value of your retirement account, sometimes dramatically.

Even after the Enron debacle and constant warnings from investment advisers to diversify, plenty of employees still invest in company stock through their retirement plans, and plenty of employers still make 401(k) matches with company stock, says Davis.

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