Compliance January 6, 2004

Court: Participants Have to Prove Plan Assets in Trust

January 6, 2004 (PLANSPONSOR.com) - Participants have to prove their plan assets are being held in a trust for their benefit in order to shelter those assets from their bankruptcy filing, an appeals court ruled.
Reported by

>A husband and wife sought to exclude their interests in separate employer-sponsored annuities that include transfer restrictions that make the assets qualify for special treatment under ERISA, according to a Thomspon Publishing report. The couple asserted and a lower bankruptcy court agreed that the ERISA qualification keeps the assets from the reach of the bankruptcy trustee.

>However, the US 6 th Circuit Court of Appeals ruled that bankruptcy debtors have the burden to show that their retirement plan assets are in a trust in order to qualify for an exclusion in the US Bankruptcy Code covering a debtor’s beneficial interest in a trust.

>According to the report, an examination of the plans in this case shows no intention to create a trust. While the plans may qualify for special tax treatment under ERISA, that status does not automatically carry over to interpretations of the Bankruptcy Code.

The case is Rhiel v. Adams, No. 03-8011 (Dec. 10, 2003).

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