Bankruptcy Bill is Law

Effective in 6 Months.

Check AP News Wire etc.

Two good links in today's benefit buzz.
Ice Miller
here
Faegre & Benson
and here Here

The act will provide a unform exemption for all retirement plans including IRAs and 457 plans from creditors of the employee in both opt out states as well as those states that have not opted out of federal bankruptcy exemption scheme. The aggregate IRA exemption will generally be limited to $1M but will not include rollovers from employer sponsored plans, SEPS and SIMPLEs.

mbozek, do you think this effectively fills the "gap" that seemed to exist in the U.S. Supreme Court Case (Shummate vs. Patterson) where only "ERISA Qualified Plans" were protected and since owner only plans were not subject to Title I of ERISA they were still considered vulnerable. I'm just trying to understand how the aforementioned U.S. Supreme court case and the new bankruptcy law mesh and/or overlap and if there are still any gaps in protection now the new bankruptcy law has been passed.

The Act exempts retirement funds to the extent those funds are in a fund or account exempt from taxation under 401, 403, 408, 408A, 414, 457 or 501(a) of the IRC subject to a $1M cap for IRAs that are not derived from a SEP or SIMPLE or rollover from a retirement plan.

Thanks. That sounds like a pretty comprehensive firewall for the moment.

Mbozek (or anyone else), how does it work exactly that most states have opted out from using the federal bankruptcy code exemption list but this federal bankruptcy law appears to still apply to those states opting out (at least for tax-exempt funds purposes). It must supercede the opted-out states bankruptcy codes somehow ? Just trying to understand the mechanics of it.

Acording to a memo from the law firm of Icemiller, the exemption of retirement plan assets from bankruptcy creditors will apply uniformly regardless of whether the debtor lives in a opt out state or non opt out state or elects fed or state exemptions.

I know that the participant's assets in a qualified plan are protected, but what about new contributions / payroll elections for future contributions? Are those also protected?