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Chapter 3. How Safe Is Your 401(k) Money... > Keeping Track of Your Money - Pg. 33

How Safe Is Your 401(k) Money? 33 Warning! Some people think that their money in 401(k) plans can be insured against a loss. It depends on what kind of loss you're talking about. Once your money enters the 401(k) trust, any fraud, embezzlement, or other criminal activity that might harm you would be protected by insurance. However, your money is not protected against investment losses. In most 401(k) plans, employees direct their own investments. The trustee's job is to follow your orders, no matter how smart or dumb those orders may be. The trustee exercises no judgment on how you invest your 401(k) money. Like your employer and the investment manager, the trustee offers no guarantees on the return you'll get on your money. Some plans match your contributions with company stock or require that the match be invested in a particular type of investment. Even in this case, where you have no control over your investments, your employer or the trustee is not liable unless you can prove they have done something wrong. Investment Manager The trustee sends your money to the investment manager, generally by wire transfer (i.e., elec- tronically), within 24 hours of receiving it from the company. The money is invested according to the instructions given to the trustee by the record keeper. The one area in which there are no guarantees that your money is safe is when it's invested. Un- fortunately, although your money is generally safe from the investment manager going bankrupt or committing a criminal offense (you know, like stealing your money), there is no insurance against investment risk. Investments generally increase in value, but the value can go down as well as up. Your best insurance policy against investment losses is education. Reading this book is a very small price to pay to safeguard your money. Later, in Part 3, "Mastering the Basics of 401(k) Investing," we'll show you how to make relatively safe investments, even in the stock market. For What It's Worth Some people think insurance provided for pension plans by the Pension Benefit Guarantee Corporation (PBGC) is also available for 401(k) or other types of defined contribution plans. Sorry! The PBGC only protects defined benefit pension plans and only if the plan sponsor has insufficient funds to pay participants if the plan is terminated or the company goes under.