Retirement Plan Assets in Wake of Recent Bank Failures

March 2023

You likely are aware of two recent bank failures: Silicon Valley Bank (SVB) and Signature Bank in New York. Although such news often evokes a range of emotions, it is important to consider the circumstances surrounding these isolated failures. “Firm-element risk” is the risk that a single security (stock or other security) may result in the complete or near complete loss of value. A key practice is to diversify away firm-element risk by investing in a number of separate securities across a broad range of industries.

Benefits to Diversification

The initial indication is that SVB equity positions are less than 0.018% of the S&P 500 index.1 For most qualified plan (401(k), 403(b), 457(b)) participants, the mutual funds are generally broadly diversified to help mitigate firm-element risk. While short-term volatility in the banking sector is to be expected, long-term stability should return as the risk of contagion is better understood.

According to a joint Treasury, Federal Reserve, and FDIC statement, “[t]he U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”2

Employee Assets Held Inside ERISA Mandated Trusts

In addition to the investment risk, many participants may feel anxious regarding their retirement funds should their employers experience financial difficulties. Qualified retirement plans generally require participant plan assets to be held in trust.3 Trust assets are held separate and distinct from employer assets, which provides significant and substantial protection of participant assets.

Trustee & Custodial Agreements at Recordkeepers Covered by the SEC and FINRA

There may also be concern surrounding qualified plan assets held by large corporate trustees and custodians. The structure of most directed trustee and custodial agreements provides for the segregation of trust and custodial assets. The Customer Protection Rule and similar regulations require assets to be identifiable at the plan level in the event of a credit event at the selected trustee/custodian.


In conclusion, although these recent events may be worrisome, there are extensive measures in place to protect your retirement assets. Please don’t hesitate to reach out to your Lebel & Harriman contact during times of market volatility or when you have investment related questions – we are always here to help.


  1. February 2023 Monthly Update TOPS® Exchanged-Traded Fund Portfolios
  2. Joint Statement By Treasury, Federal Reserve and FDIC (March 12, 2023)
  3. 29 U.S.C. Section 1103- Establishment of trust

The information presented here is for educational purpose only and is not intended to provide specific advice or recommendations for any individual, nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. All examples are hypothetical and are for illustrative purposes only.

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