I have a 401(k) client who is winding down their business due to law changes within their industry and one of the two partners is dying from brain cancer. They have a 4k plan which is funded to the maximum and still have 400k+ in their corporate account. All of the employees are gone except for the two partners and one nonrelated employee. Could they keep the corporation open, establish a DB plan and fund the plan in an effort to get some of the money out of their corporate account and then, if, down the road, they have no alternative but to file bankruptcy (due to non-negotiation with their landlords), would the DB and 4k assets be protected from bankruptcy court? Thank you. Donna Neuhauser Pensions Ltd (San Diego County, California)

I would try to be a little more discreet the next time you post such a question (you do know that those Google spiderbots are constantly trolling around the Net?)

Only a little more discreet? Perhaps you should edit your message and remove the details.

And it appears your client needs legal advice, where such specifics will be unavailable here.

Imminent feeding frenzy. Blood in the water. Why not a a 412(i)?

Their goal is to SHELTER the money, not WASTE it!

They could spend it anywhere, they just want to keep it!

Perhaps you miss his sarcasm.

Whether or not benefits are protected in bankruptcy (beyond the 90-day period) is a matter of whether under state law, the qualified plan is a "spendthrift trust". The California Supreme Court has determined that if a QP is "ERISA-qualified" it will be excluded from the bankruptcy. To be ERISA-qualified requires 3 elements:
1. That the plan comply with IRC 401(a) and other IRC requirements in form and substance.
2. That the plan be operated consistent with its documents with no operational defects.
3. That the plan cover at least one rank and file employee.

NY courts have accepted the premise that ERISA preempts any claims by a creditor to a return of plan assets that were fradulently transferred to a pension plan by a debtor corporation because Supreme Ct cases do not permit implicit exceptions to the non alienation requirement. Majteles v. AVL corp. 192 Misc 2d 140. Creditors can seize distributions after they are paid to a participant.

Many 412(i)'s still lookin' good with veba's conditions (they don't meet any of those). rcline, remember, like Bill Clinton's campaign slogan, up on the wall "the deduction, stupid"