[Homestead] 401k question
EarthNSky
erthnsky at bellsouth.net
Sat Oct 25 00:14:24 EDT 2008
So what happens if a business goes under?
For the sake of argument, the business is mid sized, less than 50
employees. All 50 would have to be paid within a few weeks, no?
Clansgian at wmconnect.com wrote:
>
>>> Why is it, if you have a 401K through your employer, that you have to
>> quit your job in order to cash out? Why?
>>
>
> The simple answer (non answer, really) is that federal law mandates it.
>
> But the reason is because your employer doesn't actually have the money. The
> money is theoretical, just like 'money' in the stock market. When you work a
> job you have the option of keeping all your money and spending it as you
> choose, or buying 401K lottery tickets with part of it.
>
> Just like of 50% of the people who had, say, ITT stock put in an order to
> sell that stock on Monday morning (cash it out, as it were), the other 50% of the
> people who own that stock would get nearly nothing. Actually it would only
> take ore like 5% rather than 50%. It's because the "money" in that stock
> doesn't really exist, even as money, which itself doesn't really exist in any real
> sense of the word.
>
> So if an employer sponsors a 401K and suddenly half the employees decided to
> "cash out", there isn't any actual money to pay them. All the "money" (nod,
> nudge, wink) is actually a hope that the stocks that make up the 401K will be
> doing well when you do cash out.
>
> So limiting withdrawals and dissolutions to only employees who are leaving
> the company and the plan, the employer is not faced with the need for coming up
> with a large amount of cash (which it doesn't have) to pay off the
> contributors should a lot of them just want or need the money.
>
> James
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