The Employee Retirement Income Security Act of 1974 (ERISA) covers the retirement plans and welfare benefit plans of about 54% of America’s earned retirement benefits, and 59% of health benefits associated with those plans. ERISA protects retirement accounts from mismanagement and abuse, while promoting transparency and accountability. The Labor Department’s Employee Benefits Security Administration, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation are responsible for ERISA enforcement when a company goes bankrupt, or if another prudential breach occurs. EBSA conducts investigations of criminal violations under Title 18 of the U.S. Criminal Code, which addresses commission of:
1) Embezzlement or theft
2) False Statements or Concealment of Facts
3) Offer, Acceptance, or Solicitation to Influence Operations of Employee Benefit Plans
If A Retirement Account Is at Risk of Attachment
ERISA-qualified plans are at risk of seizure under some circumstances where a plan member has commissioned criminal or tortious wrongdoing against the plan; owes criminal fines or civil penalties to the federal government; outstanding federal income tax debt; child support enforcement; or an ex-spouse meets the criteria for a qualified domestic relations order (QDRO). Accrued benefits are “non-forfeitable” interest. Spouses have a right to claim at least partial pension benefits at time of a participant’s death. If a judgment is levied against an ERISA qualified retirement fund, a creditor may be able to seize all or part of the participant’s account. While a qualified account may be protected under ERISA, distributions from the account may still be subject to attachment.
Retirement accounts that are not exempt under ERISA protections may be subject to attachment by judgment on behalf of a creditor. Non-ERISA retirement funds at risk of creditor seizure in the case of a court-ordered attachment: Keogh Plans; Traditional, Roth and SIMPLE Individual Retirement Accounts (IRAs); Simplified Employee Pension (SEP) Plans; 403(b) plans for employees of a public school or university; “employer-only” plans not benefitting employees; and government plans and church plans. Exemption for non-ERISA accounts vary state-by-state. Bankruptcy filing is an alternative to attachment, allowing a up to $1 million in qualified IRA protected assets.
How Recent ERISA Reform Impacts Pension Funds
In 2018 new fiduciary rules, in compliance with United States Department of Labor reform of the Act in 2017, will require all financial professionals to be fiduciaries, including plan administrators, plan trustees, and plan managers. Instituted to mitigate conflict of interest risks associated with investment advisory, the reforms make financial professionals with discretionary authority personally liable for losses to the plan. Unjust enrichment from improper use of plan assets, including transfer of protected asset classes to creditors without consent of the retirement account holder, is a breach of fiduciary duty. Participating employees of employer pension funds, maintain the right to sue a plan and its managers as result of plan mismanagement. ERISA also prohibits voluntary transfer under federal “anti-alienation” provisions; preventing an employer or plan administrator from releasing benefits to a creditor.Employers may terminate plans however, if a fund becomes insolvent. ERISA provides employees with some protection of benefits at time of termination. Accrued benefit from tax-qualified plans must be 100 percent vested to the extend funded, at time of termination.
If you are seeking legal advice about pension fund protection from creditor attachment, contact a licensed attorney at Doane and Doane, P.A. We are here to help with any retirement or estate planning needs you may have, and we will ensure your rights are protected.