pension protection against debts

[Guest jesseg46]

I need to know what protections my cash balance pension has against debts and collections.

[david rigby]

Generally, a qualified plan (pension, profit-sharing, 401k, ESOP, etc.) is not subject to such action. (It is possible that different rules apply to plans sponsored by state or local governments.)

Internal Revenue Code section 401(a)(13) reads as follows:

"(13)Assignment and alienation. -

(A)In general. - A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated. For purposes of the preceding sentence, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment made by any participant who is receiving benefits under the plan unless the assignment or alienation is made for purposes of defraying plan administration costs. For purposes of this paragraph a loan made to a participant or beneficiary shall not be treated as an assignment or alienation if such loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax imposed by section 4975 (relating to tax on prohibited transactions) by reason of section 4975(d)(1). This paragraph shall take effect on January 1, 1976 and shall not apply to assignments which were irrevocable on September 2, 1974.

(B)Special rules for domestic relations orders. - Subparagraph (A) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that subparagraph (A) shall not apply if the order is determined to be a qualified domestic relations order."

Note that the first sentence of (A) is pretty strong language. The reference in (B) to a domestic relations order is the express exception to (A).

[RCK]

As usual, I agree with pax. One of the secondary goals of all of ERISA is to protect retirement benefits from assignment or alienation.

Keep in mind though that those protections are off once the money leaves the qualified plan.

RCK

[david rigby]

True. For example, benefits under the plan generally cannot be reached in a bankruptcy, but that is not true of an IRA.

[Archimage]

However, some states do offer bankruptcy protection to IRAs.

[mbozek]

Also the last time I looked, the proposed bankruptcy law contains a $1,000,000 exemption for IRAs from claims of creditors.

[kocak]

I thought these protections were only for tax-qualified plans. For example, a plan covering only the sole owner or only partners was not necessarily protected, since these plans are not covered by ERISA? Am I remembering this right?

mck