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Compliance March 5, 2000
Retirement Assets Might Escape Creditor Clutches
May 3, 2000 (PLANSPONSOR.com) - Retirement plan
balances may escape creditor clutches, after all. A
controversial pension plan waiver provision will be removed
from the pending bankruptcy reform bill, according to aides
of Senators Charles Grassley (R-Iowa) and Jeff Sessions
(R-Ala.). The provision would have allowed individuals to
waive the current exemption that protects retirement plan
assets from creditors, either while in bankruptcy, or as part
of a loan agreement.
Reported by editors@plansponsor.com
However, the senators say they will continue to push for a limit on the amount of retirement plan assets that can be shielded from bankruptcy, according to BNA’s Daily Labor Report.
Critical Attention
A long list of critics of the pension waiver provision has emerged, including the Labor Department, several key senators, large employers and labor unions.
Separate bills were passed by overwhelming majorities in both the House and Senate earlier in the year, apparently unaware of the provision inserted at the last minute.
Senate Judiciary Committee Chairman Orrin Hatch (R-Utah) reiterated his strong opposition to the measure in a May 1 letter to Senator William Roth(R-Del.), Senate Finance Committee Chairman, and Senator James Jeffords (R-Vt), Senate Health, Education, Labor, and Pensions Committee Chairman. Hatch noted “such a provision would undermine the important protections of retirement savings.”
Hatch added language to the bankruptcy legislation that would extend the protection currently enjoyed by private employer-sponsored plans to Roth IRAs, Keogh plans, and those established for government employees, teachers, and employees of nonprofit organizations and churches.
Not Done Yet
Still, Grassley and Sessions plan to substitute a “sliding scale” cap for the pension waiver provision, that would provide only a partial protection. According to aides, they are considering a proposal that would allow a 65-year-old debtor to exclude up to $1 million in pension assets from a bankruptcy estate, an amount that would be scaled back for younger individuals. Those 21 or younger would only have a cap of $250,000, for example.
Benefits groups remain opposed to any assignment of retirement plan assets.
Uncertain Future
At present, the bill’s fate is uncertain, tangled up with an attempt to raise the minimum wage and an electronic signatures bill.
Grassley has said he was seeking to prevent wealthy debtors who file for bankruptcy protection from shifting their assets into protected retirement accounts to escape repaying debts. Critics say the bill is unduly harsh on creditors.
The bill numbers are H.R. 833 (House) and S. 945 (Senate).
– Nevin Adams editors@plansponsor.com