How To Protect Assets if Brokerages, Banks, or Pensions Fail

Chain and padlock fastened around stack of $100 bills
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It seems like when companies go under, the board members get rewarded and the people who are supposed to get the pensions or protections are left holding the bag, getting little to nothing.

It’s frustrating and scary, but in cases like this, a bit of planning and due diligence can do a lot for asset protection, even if a brokerage, bank, or pension fails. That’s because there are three main institutions that are designed specifically to protect consumers when these institutions go under.

They won’t help you if the market experiences a downturn and you lose money (that's simply the risk you take when investing your money). But if the institution holding your money fails, they can provide a great deal of protection for people counting on their money being there when they need it.

Here are three of the primary protections in place when it comes to savings and investments.

Asset Protection for Brokerage Accounts

The Securities Investor Protection Corporation (SIPC) is private insurance coverage for brokerage firms. The key to getting protection from the SIPC is to make sure whatever brokerage firm you are using is a member, because they only protect member firms.

If you have a rainy day fund or retirement account at a member firm and the brokerage goes under, then you are guaranteed up to $500,000 in protections.

But there are circumstances where this protection isn’t guaranteed, and this is important to know.

If a firm is participating in improper trading and you don’t have records on file of complaints, then your money might be lost.

The government puts the responsibility for trades squarely on the shoulders of the person making the trades, not on the brokerage firm.

Sometimes people also find themselves in the situation where they must take the SIPC to court to get them to honor the protections promised. This is not as unusual a circumstance as it may seem. That’s why it’s a good idea to make sure any brokerage firm you work with is not just a member of the SPIC, but also that it has a stellar reputation and solid history. This can help you with asset protection, because if the firm doesn’t go under in the first place, you won’t have to make a claim.

Asset Protection for Bank Deposits

Bank deposits have more straightforward asset protection that is easier to collect on than brokerage firms. If a bank deposit is insured by the Federal Insurance Deposit Corporation (FDIC), then your assets are insured up to $250,000 per person per account, with the full faith of the federal government.

If your bank goes under, then the federal government will step in and try to get a healthy bank to take over your deposits. If that doesn’t work, then the FDIC will sell the bank's assets and make payments to you for the insured amount.

It’s important to note the FDIC doesn’t cover any kinds of investments in the stock market—even if they are bought and sold in a bank.

Finally, Treasury bills and notes are protected by the U.S. government even if the bank where you bought them goes belly up. Even with FDIC insurance, it’s a good idea to do your due diligence on the bank you plan on doing business with to make sure they are on solid financial footing.

Asset Protection for Pensions

This one can be a little trickier. There is a protection agency for pensions called Pension Benefit Guaranty Corporation, or PBGC. But many smaller companies that have fewer than 25 employees are not covered by PBGC. In this case, if employees' pensions go bankrupt, there is no protection for the workers.

Still, PBGC does cover pensions for about 25,000 private companies as protection if they can’t fund their own pensions, and it has a good track record of fully funding pensions when a pension plan goes bankrupt.

You can find out from your human resources department if your pension is protected by PBGC.

The Bottom Line

It’s important to understand the various agencies that protect your assets in the event that a bank, pension, or brokerage firm fails. But it’s equally important to be proactive in planning for your future and do your due diligence anywhere that you put your hard-earned money.

That’s the best way to protect yourself.