Do Pre-Bankruptcy 401(k) Deferrals Have to be Returned?

[Alf]

A sponsor has filed bankruptcy and creditors want last remittance of 401(k) deferrals made BEFORE bankruptcy returned to employer. I think it was supposed to be an avoidable preference. It was 401(k) only and it was remitted prior to bankruptcy, so I don't see how it can revert back to employer (antialienation or plan assets??), but I can't find any authority specifically dealing with 401(k) salary deferrals. Who is correct? Does anyone have a cite I can rely on?

[Belgarath]

I'm not sure anyone is necessarily right or wrong, it is what is determined in the courts and also by applicable state bankruptcy law.

Just saw a decision the other day, In re Bellwoar, Pennsylvania bankruptcy case - bankruptcy court determined that under applicable Pennsylvania bankruptcy law, the amounts that a debtor contributed to a 401(k) account within the year preceding a bankruptcy filing could not be excluded from the bankruptcy estate...

Now, I'm not an attorney, and have no idea where this might go on appeal. But it does indicate to me that across the board answers in this area are hard to come by.

[Alf]

That sounds like it might be a participant's bankruptcy. I understand that area is hard to nail down, but I thought that a sponsoring employer's bankruptcy would be different because it is deferred wages from employees that is involved.

[Belgarath]

If you are talking about other participant's deferrals, then I think such a claim is clearly ridiculous, and will go nowhere in court. I thought you were referring to the personal deferrals of the owner only.