Supreme Court Protects Business Owners' ERISA Plan Assets
By Peter Scott
President of Retirement Capital Group's Mid-Atlantic Executive Benefits
Practice
The US Supreme Court determined in March that a working business
owner is an ERISA plan "participant", entitled to ERISA's
protection against having their retirement plan account seized by
bankruptcy creditors. This is an important ruling for business owners
seeking protection against personal or business creditors.
The ruling involved Dr. Raymond Yates, who was the sole owner of
a professional corporation. He also maintained and controlled a
profit-sharing plan, which had at all times, at least one other
participant besides Yates and his wife.
Yates borrowed from his account under the plan, and repaid the loan.
Three weeks later, his creditors soon filed an involuntary bankruptcy
petition against him. The US Bankruptcy Court ruled that Yates'
repayment of the loan must instead go to his creditors. The bankruptcy
court, and later a federal appeals court said Yates was not a participant
in the profit-sharing pension plan for ERISA purposes because he
was an owner.
Business owners (which can include partners in law firms, doctors
in medical practices, and other professional corporations) are covered
by ERISA's anti-alienation provisions if their plan covers one or
more employees other than the business owner and his or her spouse.
Until the decision in Yates vs. Hendon, the lower courts
were divided on whether owner's retirement accounts had the same
protections as accounts of employees against bankruptcy creditors.
Here, the Sixth Circuit (which covers Michigan, Ohio, Kentucky and
Tennessee) had held that the self-employed owner of a company sponsoring
an ERISA retirement plan was not entitled to "participate"
in the plan as an "employee", and thus could not shield
his loan repayment from his bankruptcy creditors.
The Yates ruling is important for business owners interested
in the Insured Security Option Plan (ISOP®), a unique ERISA
protected plan available to business owners through Retirement Capital
Group. The ISOP® is a secure, funded alternative to non-qualified
deferred compensation plans that allows business owners and executives
to contribute unlimited amounts to an ERISA retirement plan. The
ISOP® uses a combination of after-tax contributions and additional
funds to maximize retirement income.
ERISA plans provide security against corporate or personal creditors.
However, retirement plan contributions are limited by law, and traditional
non-qualified retirement plans lack ERISA's bankruptcy protection.
With the Supreme Court's ruling, business owners in all states
can implement a secure retirement plan through the ISOP® that
will provide meaningful, protected amounts of retirement income.
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