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'Worthington Industries employees must be aware that while ERISA-qualified plans provide significant protection from creditors, non-ERISA accounts like IRAs are more vulnerable, and it's crucial to understand state-specific laws to ensure full asset security as you approach retirement,' says Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement Group.
'As retirement approaches, Worthington Industries employees should consider not only the strength of their ERISA-qualified plans but also the potential vulnerabilities of non-ERISA accounts, and seek guidance from legal and financial experts to ensure their assets are fully protected,' advises Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement Group.
In this article, we will discuss:
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The protection of retirement savings under ERISA-qualified plans.
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The limitations of ERISA protection, including potential risks from creditors.
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The role of state laws in protecting non-ERISA retirement accounts like IRAs.
For employees at Worthington Industries, an important issue is the security of retirement savings, especially when employees approach the retirement age or are retired. It is generally assumed that all retirement assets are protected from creditors. Nevertheless, the extent to which these assets are protected differs greatly depending on the type of retirement plan and the laws of the state. In this article, we explore the specifics of asset protection.
Plans Covered by ERISA: A Stronghold Against Creditors
Most of the retirement plans that meet the eligibility requirements of the Employee Retirement Income Security Act (ERISA) are generally safe. Such ERISA-qualified plans are also usually safe from the reach of creditors in the event of bankruptcy or civil suits. Importantly, this protection is maintained even if the company sponsoring the plan goes bankrupt. These assets are usually out of the reach of personal creditors.
To meet the ERISA requirements, a retirement plan must be offered by an employer or an employee organization and must meet certain federal requirements regarding membership reporting, funding, and vesting. Typical ERISA-qualified plans include profit-sharing plans, pensions, deferred compensation plans, and 401(k)s.
Furthermore, ERISA applies to some employee health and welfare benefits, such as:
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Hospital, surgical, and medical coverage through Health Maintenance Organization (HMO) plans.
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Health care Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs).
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Dental and vision plans.
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Prescription drug programs.
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Disability insurance.
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Specific welfare benefit plans under sections 419(a)(f)(6) and 419(e).
The anti-alienation clause in these plans prohibits the assignment of benefits and thus keeps the assets beyond the reach of most creditors.
Weaknesses of ERISA-Qualified Plans
Although they are very strong, ERISA plans are not foolproof. They can be subject to claims by:
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A former spouse for child support or divorce settlements, with a Qualified Domestic Relations Order (QDRO).
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The Internal Revenue Service (IRS) for any unpaid federal income taxes.
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The federal government in cases involving fines and penalties for crimes.
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Creditors in the event that a plan participant breaches the terms of the plan.
The State of Non-ERISA Plans
The protection of retirement accounts that are not covered by ERISA, such as traditional and Roth IRAs, is not uniform. Some 403(b) plans offered by government or religious organizations may also not be ERISA plans.
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BAPCPA provides some protection for IRA funds in bankruptcy, but such funds are not protected by ERISA.
State Laws and IRA Security
The protection of IRAs and other non-ERISA plans against creditors can vary greatly by state. Some offer little protection, while others offer almost none. It is imperative to know these nuances in order to manage the risk of potential creditor claims. Worthington Industries employees are encouraged to seek the advice of experienced local attorneys in order to navigate these complex legal situations.
Conclusion
The legality of protecting retirement funds from creditors depends on the type of retirement account, state laws, and certain exemptions. Although most employer-sponsored retirement plans are relatively safe, the legal framework is complex, and it is advisable to seek legal advice early to maximize the protection of retirement assets.
Sources:
Mavar, Tyson. The Retirement Group, a Division of Wealth Enhancement Group . Interview. January 2025.
'ERISA: A Guide to Employee Retirement Income Security Act.' U.S. Department of Labor , 2024, www.dol.gov/general/topic/retirement/erisa . Accessed 31 Jan. 2025.
'How Bankruptcy Affects Retirement Accounts.' National Bankruptcy Forum , 2023, www.nationalbankruptcyforum.com/affects-of-bankruptcy-on-retirement-accounts . Accessed 31 Jan. 2025.
'State Laws and IRA Protection.' Retirement Law Journal , vol. 12, no. 4, 2024, pp. 47-52.
'Understanding Qualified Domestic Relations Orders (QDROs).' Internal Revenue Service , 2023, www.irs.gov/retirement-plans/plan-participant-employee/understanding-qualified-domestic-relations-orders . Accessed 31 Jan. 2025.
What type of retirement plan does Worthington Industries offer to its employees?
Worthington Industries offers a 401(k) retirement savings plan to help employees save for retirement.
Is participation in the 401(k) plan at Worthington Industries mandatory?
No, participation in the 401(k) plan at Worthington Industries is voluntary; employees can choose whether or not to enroll.
What is the employer match for the 401(k) plan at Worthington Industries?
Worthington Industries offers a competitive employer match for its 401(k) plan, typically matching a percentage of employee contributions, subject to specific limits.
How can employees at Worthington Industries enroll in the 401(k) plan?
Employees can enroll in the 401(k) plan at Worthington Industries by completing the enrollment process through the company’s HR portal or by contacting the HR department for assistance.
What investment options are available in Worthington Industries' 401(k) plan?
Worthington Industries provides a variety of investment options in its 401(k) plan, including mutual funds, target-date funds, and other investment vehicles to suit different risk tolerances.
Can employees at Worthington Industries change their contribution percentage to the 401(k) plan?
Yes, employees at Worthington Industries can change their contribution percentage to the 401(k) plan at any time, typically through the HR portal.
What is the vesting schedule for employer contributions in the Worthington Industries 401(k) plan?
The vesting schedule for employer contributions in the Worthington Industries 401(k) plan may vary, but generally, employees become fully vested after a certain number of years of service.
Does Worthington Industries offer any financial education resources for employees regarding the 401(k) plan?
Yes, Worthington Industries provides financial education resources and workshops to help employees understand their 401(k) options and make informed investment decisions.
At what age can employees at Worthington Industries start withdrawing from their 401(k) plan without penalties?
Employees at Worthington Industries can generally start withdrawing from their 401(k) plan without penalties at age 59½, subject to specific IRS regulations.
Are there loans available against the 401(k) plan at Worthington Industries?
Yes, Worthington Industries may allow employees to take loans against their 401(k) plan balance, subject to the plan's specific terms and conditions.