How to Protect Retirement Savings from Creditors

Think your retirement savings are safe? If you are behind on bills, can your creditors take your pension or other retirement savings from you?

For the most part they can't. But there are some exceptions, at least in Minnesota. The key thing you need to know is whether your savings are in an ERISA-qualified plan.

ERISA is the federal "Employee Retirement Income Security Act." ERISA-qualified 401(k) and pension plans are protected by federal law. Creditors cannot garnish funds in ERISA-qualified plans, except in very limited situations (federal tax debts, debts related to federal crimes, and domestic support 'QDRO' orders to split retirement funds are the primary exceptions). How do you know if your plan is ERISA-qualified? Ask the plan administrator. This is normally the HR or payroll person if the plan was set up by an employer. You can also try running a basic search for your plan at the FreeERISA website. But you should still check with the plan administrator to make sure.

The problem is that not all retirement savings plans are covered by ERISA. Most IRA's, for instance, do not fall under ERISA protection (rollovers and employer-created IRA's can be covered but most IRAs are not created this way). It's uncommon, but some pension plans are also not ERISA-qualified.

For any savings you have that are not covered by ERISA, you're going to have to look for other laws to protect those funds. Minnesota has a law protecting retirement savings, but it only provides protection up to a present value of $69,000. And that's the combined value of all of your non-ERISA-qualified savings, not a per plan amount. This amount comes from Minnesota Statute Section 550.37, Subd. 24, as adjusted by the Minnesota Department of Commerce. The number doesn't change very often.

This means that an aggressive creditor could get every penny of your retirement savings, minus the first $69,000! So knowing whether your retirement plans are ERISA-qualified is critical.

This all assumes that you are not filing for bankruptcy protection. Bankruptcy is complex, but it can often provide additional protections for retirement savings. If you're at all concerned about losing your nest egg, give us a call. We can discuss your situation and talk about how bankruptcy might help.

About the author: Dan Cooke

Image credit: