PLANSPONSOR - February - March 2022 - 9

received its $112.6 million in special
financial assistance.
Besides confirming that the payment
has now gone out to Local 138, the PBGC
announced it has approved a second application
for emergency pension funding,
this one coming from the Bricklayers and
Allied Craftworkers Local 5 New York
Retirement Fund Pension Plan.
The Bricklayers Local 5 Plan, which
covers 821 participants in the construction
industry and is based in Newburgh, New
York, will receive approximately $61.8
million in financial assistance, including
interest to the expected date of payment
to the plan. The plan was projected to run
out of money this year, and, without the
special financial assistance, would have
needed to reduce participants' benefits
to the PBGC guarantee levels upon plan
insolvency-i.e., roughly 20% below the
benefits payable under the plan's terms.
The PBGC says the special support
payment will let the plan continue to pay
retirees' benefits in full for many years.
Protection of RetirementPlan-Asset
Rules Expands
Recent court decisions have expanded on
the bankruptcy protections provided to
qualified retirement plan accounts under
the Employee Retirement Income Security
Act in some specific circumstances.
In the recent case In re: Dockins, the
U.S. Bankruptcy Court for the Western
District of North Carolina considered
whether a 401(k) account inherited by a
debtor prior to her filing Chapter 7 bankruptcy
is protected from creditors. The
court concluded that the fund is not the
property of the bankruptcy estate, and
the debtor does not need an exemption
to keep it.
In the case, the trustees argued
that the inherited 401(k) has the same
legal characteristics as an inherited individual
retirement account, and, in Clark
v. Remeker, the U.S. Supreme Court
found that an inherited IRA could not
be exempt from the bankruptcy estate of
the petitioner. The Supreme Court decision
turned on whether the funds in
the IRA could be considered retirement
funds, " set aside for the day an individual
stopped working. " In determining
that the inherited IRA did not qualify as
" retirement funds, " the court looked at
three legal characteristics of the inherited
account: 1) the holder of the funds
may never invest additional funds; 2) the
holder must withdraw the funds within
a certain amount of time; and 3) the
holder may withdraw the full balance at
any time without penalty. In sum, IRAs
are protected in bankruptcy, but inherited
IRAs are not, explains Christopher
S. Lockman, a partner in the employee
benefits and executive compensation
group at legal firm Verrill.
The judge in the North Carolina case
rejected the trustees' argument, saying
" the legal characteristics of inherited
IRAs relevant to the Supreme Court's
analysis in Clark are not relevant to the
analysis of 401(k)s. "
According to the court opinion,
Bankruptcy Code Section 541(c)(2) says,
" A restriction on the transfer of a beneficial
interest of the debtor in a trust that
is enforceable under applicable nonbankruptcy
law is enforceable in a case under
this title. " The judge said the Supreme
Court found that ERISA's anti-alienation
provision-Section 206(d), which says
benefits under a plan may not generally
be assigned or alienated-is enforceable
under bankruptcy code.
The judge also cited prior case law
finding that, as long as assets remained
in an ERISA plan, they were not part of
the bankruptcy estate. " Therefore, the
401(k) funds are not property of the estate
under Section 541(c)(2), " the judge ruled.
Allison Itami, a principal in Groom
Law Group, Chartered, points out that
the court said, the fact that the petitioner
could have taken a distribution did not
override ERISA protections.
In another recent case, Penfound
v. Ruskin, the 6th U.S. Circuit Court of
Appeals explained that the principal
benefit of Chapter 13 of the Bankruptcy
Code is that debtors may " obtain some
relief from their debts while retaining
their property. " To take advantage of the
protection, a debtor must commit all of
his " projected disposable income " to his
creditors for a fixed period of time under
a repayment plan.
While the code does not explicitly
define " projected disposable income " -it
does define " disposable income " -several
courts have weighed in on what projected
disposable income includes. The 6th
Circuit noted in Davis v. Helbling that the
Bankruptcy Code's definition of disposable
income is backward-looking-the
definition is determined based on the
debtor's " current monthly income, " which
is defined as his average income over the
six full months preceding bankruptcy.
From this, the appellate court determined
that a debtor is allowed to deduct from
disposable income the average amount he
contributed to his 401(k) each month in
the six months preceding his bankruptcy.
The male debtor in Penfound v.
Ruskin had previously made regular
contributions to a 401(k) plan, but, in
the months leading up to the bankruptcy
filing, he had worked for an employer
that did not offer a 401(k). The month
before filing for bankruptcy, though, he
began working for a new employer, and
he wanted to contribute $1,375 to the new
employer's plan and have that amount
excluded from his disposable income for
the purposes of the bankruptcy plan. The
6th Circuit ruled that it did not matter
that he lacked the opportunity to participate
in a plan in the months leading up
to his bankruptcy and that, because he
was not contributing regularly in the six
months previous to the bankruptcy filing,
he could not exclude the $1,375 from his
projected disposable income. -PS
For in-depth coverage of these topics and more, go to PLANSPONSOR.com/compliance.
PLANSPONSOR.COM February - March 2022 9
http://www.PLANSPONSOR.com/compliance http://www.PLANSPONSOR.COM
PLANSPONSOR - February - March 2022

Table of Contents for the Digital Edition of PLANSPONSOR - February - March 2022
