401(k) Assets Caught in Limbo: Plan Sponsor Bankruptcy Explained

Lawmakers have asked the Labor Department to ensure Steward Health Care System LLC preserves benefits for nearly 30,000 workers plus retirees during its bankruptcy, highlighting the sometimes precarious state of retirement assets after a company files.

Procedures are in place to make sure that an employer going bankrupt doesn’t separate plan participants and beneficiaries from the savings they’ve accrued over the years, and the Labor Department can take special steps to shepherd 401(k) assets into their rightful owners’ accounts after a plan is terminated.

The two most common types of bankruptcy proceedings that plan sponsors undergo, Chapter 7 and Chapter ...