ERISA and Retirement Asset Protection

When seeking to protect your retirement assets, a number of factors come into play. Unless the judgment creditor has an automatic right to pursue retirement assets, a creditor's ability to reach these funds depends on whether the Employee Retirement Income Security Act (ERISA) applies to the plan holding the assets.

When a non-ERISA plan is involved, creditors can access a participant's plan assets unless there is a state law that prevents them from doing so. Non-ERISA plans include individual retirement accounts (IRAs), simplified employee pension (SEP) plans, nonqualified deferred compensation plans, phantom stock plans, stock bonus plans, and tax-qualified retirement plans in which only the owner (and possibly the owner's spouse) is the beneficiary.

With ERISA retirement plans, retirement benefits are protected from creditors during the period retirement assets are held in trust. Pension plans protected by ERISA include qualified plans like profit-sharing plans, money purchase plans, defined benefit plans, and 401(k) plans.

However, when the participant's interest in the trust is in payout status, things change. Then, creditors may attempt to cut in on the amounts being received from the plan by the plan participant. The only thing that can save a person then is if a state law provides additional protection for retirement plan assets.

If at this point you are questioning whether retirement assets are ever truly protected, consider the following example submitted for your approval (or disapproval):

Example Othello Julius (OJ) Sampson, a famous sports figure and nominal actor, was implicated in the deaths of his ex-wife, Desdemona, and her male companion, Cassio. Although OJ was acquitted of criminal charges, there was more than enough evidence to establish his guilt in a wrongful death suit initiated by the families of Desdemona and Cassio. The judgment against OJ in the civil trial was in the amount of $33.5 million. Unfortunately, the families won't get much of that judgment because most of OJ's substantial assets are protected from creditors. OJ, a resident of California, benefits from the significant amount of assets that his state allows a debtor to protect from creditors. More significantly, his main assets, consisting of $4 million in pension savings and a $20,000 monthly income withdrawal for living expenses, can't be touched by the courts or his creditors.

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