Do ERISA Retirement Plans Bar A Creditor From Garnishing The Account Even If The Transfer Was Fraudulent?

Believe it or not the answer is yes. Okay, some very brief background. ERISA, i.e. 401(k) plans, are known to be pretty solid creditor protections for anyone that has such a plan. IRAs as well but not quite as strong as ERISA plans. Anytime a financial adviser is discussing the pros and cons of retirement account investments, they often forget to weigh in on the strong asset protection component of these types of accounts. We find that clients have a strong desire to protect their assets from creditors so this aspect needs to be weighted in on the decision to invest, perhaps invest heavily, in retirement plans.

In the case of Shah v. Baloch, the court shows how strong this asset protection is. Basically this was a case of someone transferring funds into a retirement account with the purpose of protecting the funds from a known creditor This is a no-no in almost all circumstances but apparently not if the transfer was to a 401(k) account. The court determined that the creditor protection component of ERISA (i.e. 401(k) plans) is stronger than the ‘fraudulent conveyance’ laws.   This therefore illustrates how strong of an asset protection retirement accounts are and should be strongly considered in everyone’s overall estate plan.