Your Pension in Bankruptcy
If you are considering filing for bankruptcy and you currently have a pension in place, it is only natural to wonder if your pension will be safe. Currently, there is broad protection for pensions under the law.
The type of plan you have will determine if it will be protected. Most plans, with few exceptions, will be protected from bankruptcy, but it is important to understand what kinds of plans are protected and if yours is one of them.
Types of Plans That Are Automatically Exempt
There are some plans that are automatically exempt without any action on your behalf. Some of these accounts include some government retirement accounts under IRC 414(d), some retirement and pension plans that fall under the Employee Retirement Income Security Act of 1974 (ERISA), Individual Retirement Accounts (IRA) for education that are listed under IRC 530(1)(b), annuity plans under IRC 403(b) that are tax deferred, and even some compensation plans under IRC 567 that are deferred. Even though these are excluded automatically, you will still need to disclose your interest in these accounts.
Types of Plans You Can Claim as Exempt
There is an exemption system that you can use in your bankruptcy if you want to keep your retirement account. You have the option of choosing state or federal exemptions. Many choose to elect federal exemptions if they do not qualify for state exemptions. Some examples of accounts that you can claim as exempt under this system include qualified annuity plans under IRC 403, eligible compensation plans that are deferred and fall under IRC 457, and a limited amount of IRAs (Individual Retirement Accounts) under IRC 408.
Types of Plans That May Not Be Recognized for Exemption of Exclusion
Unfortunately, there are some types of plans that are not automatically exempt and cannot be claimed as exempt. Some examples of these types of plans include plans that were not funded properly, plans that are not considered to be retirement plans according to the tax code, Employee Stock Purchase Plans (ESPP), and plan funds that you have rolled over into a plan that is not considered a retirement plan according to the tax code.
You do not want to make any assumptions with your pension plan. You will want to talk to your plan administrator so you can determine what kind of plan you have and if it is protected. For more information about your bankruptcy options, be sure to reach out to one of our bankruptcy lawyers at Clark & Washington.