In Patterson v. Shumate
, 504 US 753 (1992), the Supreme Court held an antialienation provision in an ERISA-qualified pension plan constituted an enforceable restriction on transfer under "applicable nonbankruptcy law" (Id.
Hendon case--the second most important case in history with regard to the protection of retirement assets (after the landmark Patterson v. Shumate case)--and other recent rulings on the subject, and provides CPAs with guidance on how to protect their own and their clients' 401(k)s and other retirement plan assets from creditors.
Supreme Court ruling that has protected retirement plan assets for the past 12 years is Patterson v. Shumate. In it the court resolved a split among the U.S.
Earlier, the bankruptcy court for the Southern District of Ohio had held that IRC section 403(b) plans (for the husband and wife) were "ERISA-qualified" as defined by the Supreme Court in Patterson v. Shumate and were not the property of the bankruptcy estate.
In an earlier case, Patterson v. Shumate [504 US 753 (1992)], the Supreme Court held that retirement benefits of a plan participant (who has filed for bankruptcy protection) in an "ERISA-qualified" plan are protected from that debtor's creditors.
A plan's status as an "employee benefit plan" under ERISA Title I has been crucial in these cases because the ability to enforce the anti-alienation provision is required in order for the benefits to be protected from creditors under the Supreme Court holding in Patterson v. Shumate. That's because Bankruptcy Code Section 541(c)(2) provides that the retirement benefits are excluded from the debtor's bankruptcy estate only if they are subject to a "restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable non-bankruptcy law." Under the Patterson v.
If so, the plan assets should be excluded from the bankruptcy estate pursuant to Bankruptcy Code [sections] 541(c)(2) and Patterson v. Shumate
. However, until the conflict between Hall and Hanes is resolved, the only guarantee that the plan assets will be excluded from the bankruptcy estate is if the plan is qualified under I.R.C.
In Patterson v. Shumate, decided June 15, 1992, the Court held that benefits in an ERISA-qualified pension plan are not subject to creditors of a bankrupt individual.
The decision of the Supreme Court in Patterson v. Shumate adds another difference between the treatment of IRAs and monies held qualified plans.
In Patterson v. Shumate
, 504 US 753 (1992), the Supreme Court determined that an anti-alienation clause required for compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and tax qualification, and contained in the debtor's plan, was a restriction on transfer enforceable under "nonbankruptcy law" within the meaning of Section 541(c)(2).
In spite of the [RS manual changes, taxpayer representatives should be aware of the recent Supreme Court decision in Patterson v. Shumate
which, in the case of bankruptcy, may have moved pension assets beyond the reach of the IRS.