If a creditor gets a judgment against you and you have a retirement account, then the judgment creditor may be able to seize all or part of the account. This will depend on whether your account is an ERISA-qualified retirement acount or a non-ERISA account. ERISA accounts are generally protected from judgment creditors, as are employee welfare benefits (like medical insurance, HSAs, and employer disability benefits).
Read on to learn the difference between ERISA and non-ERISA retirement accounts, and when your retirement account is safe from judgment creditors, and when it might not be.
(To learn about other ways judgment creditors can collect from you, visit our section on Debt Collection: Repossessions, Wage Garnishments, Property Levies, and More.)
If you have a retirement plan that was set up under the Employee Retirement Income Security Act (ERISA), then it is usually protected from judgment creditors. To be protected, your pension must be a qualified retirement plan.
Your employer is not required to provide a qualified ERISA plan, but if it does, it must meet certain requirements. To be ERISA-qualified, the retirement plan must be set up and maintained by your employer or separate employee organization (or both). The plan must provide for payment of retirement income to participating employees.
The plan must also contain the following features:
provide regular and automatic written information to you and other employees about the plan, including what the plan does and how the plan gets its funding
require the employer to provide some funding into the plan, either directly or indirectly
allow employees to become eligible to participate in the plan after they have been employed a certain period of time
provide for accumulation of benefits by each participating employee
guaranty benefits to employees upon their retirement, termination of the plan or employment, or other event.
obligate any person who manages the plan and its assets to be accountable to the participating employees for any losses as a result of mismanagement of the plan
allow participating employees the right to sue the plan and/or its managers for benefits or damages as a result of mismanagement of the plan, and
prohibit voluntary transfer by the participating employees of their interest in benefits in the plan, called an “anti-alienation” provision.
One of the most important features of a qualified ERISA plan is its anti-alienation provision. What this means is that you cannot freely transfer, sell, or give your rights in benefits to someone else, nor can your rights to those benefits be taken away. This provision is what effectively prevents judgment creditors from getting to your ERISA plan. It prevents an employer or plan administrator from releasing your benefits to a creditor who attempts to attach that plan.
Typical types of qualified ERISA plans include:
deferred compensation plans, and
profit sharing plans.
In addition to pension plans, ERISA may also cover employee welfare benefit plans. What this means is that if your plan is not a qualified ERISA retirement plan, but is “covered by” ERISA as a qualified employee welfare benefit plan, then that plan is also protected from attachment the same way as your ERISA retirement plan. A “welfare benefit plan” provides medical care benefits, monetary payments in the event of illness, disability, accident, death or unemployment, and payment of benefits related to retirement, vacation, child care, education, prepaid legal services or similar benefits to the employee.
Examples of employee welfare benefit plans include:
group health and life insurance plans
dental and vision plans
accidental death or disability benefits
Health Reimbursement Arrangements (HRA)
Health Savings Accounts (HSA)
wellness programs (including drug, alcohol and tobacco addiction), and
employee assistance programs.
Protection of your qualified-ERISA plan is not iron clad. There are some circumstances when a creditor can still get to your ERISA benefits. That includes seizure by:
your ex-spouse under a Qualified Domestic Relations Order (QDRO), to the extent of your spouse's interest in those benefits as a marital asset or as part of a child support attachment
IRS for federal income tax debts; although our plan is protected from state and local tax claims
federal government for criminal fines and penalties, and
civil or criminal judgments in cases where you did something wrong against the plan.
While a ERISA plan is generally protected, the distributions made to you may not be. At least one federal court has held that your ERISA benefits may no longer be protected once they leave the plan and are distributed to you. For example, if you deposit the distributions you receive from a retirement plan into a regular checking account, then a judgment creditor may be able to attach those funds in the account. Of course, you may still be able to protect those funds by using other exemptions available in your state. (To learn about other types of exemptions that may protect your income and assets, see Using Exemptions to Protect Property from Judgment Creditors.)
There is an exception to this rule. If you roll over the distributions into another qualified plan, then they may remain protected.
Judgment creditors may be able to seize retirement plans that are not qualified or covered under ERISA. These types of accounts are not protected by the anti-alienation clause, which means whether they are protected depends on state and federal exemption laws, which may provide much less protection against the claims of creditors.
A great deal of retirement plans and accounts are non-ERISA and may be at risk, including:
traditional Individual Retirement Accounts (IRAs)
Simplified Employee Pension (SEP) Plans
403(b) plans for employees of a public school or university
plans that do not benefit employees, or “employer-only” plans
government plans, and
Your state's exemption laws will determine whether and to what extent your non-ERISA retirement account is protected from judgment creditors. The range of protection available is broad and varies from state to state. (To learn how exemptions work to protect assets from judgment creditors, visit our Property Exemptions area.)
Some states may provide a full exemption for IRA accounts. Other states set a cap, or limit, as to how much you can protect in your IRA. While many states may allow you to exempt all or part of your IRA, you may not be entitled to exemptions for child support orders.
Many states that do not fully exempt IRAs and other non-ERISA retirement accounts also do not set a dollar cap. Instead, you are entitled to exempt only that amount “reasonably necessary for the support” of you and your dependents. There is no set definition of what this means, and courts in those states will typically consider it on a case-by-case basis. Usually, this will be an issue if you:
have a large IRA account
are relatively young and can make more contributions into your plan, or
have other sources of income to support yourself and your dependents.
If you have a non-exempt, non-ERISA retirement account that may be subject to attachment by the judgment creditor in your state, you may want to consider filing bankruptcy. This is because bankruptcy laws may allow you to protect up to $1 million in your IRA, while still affording you relief from your creditors. To learn more, including whether you qualify for bankruptcy protection, visit Nolo's Bankruptcy topic area.