Keogh Plan: Bankruptcy Court Denies Exemption To Debtor Who Is Sole Owner And Sole Participant
Section 222.21 of the Florida Statutes exempts retirement plans that have been preapproved by the IRS as exempt from taxation pursuant to Section 401(a) of the Internal Revenue Code. In a recent bankruptcy proceeding the court considered a debtor's claimed exemption of his tax deferred Keogh plan. The Code Section 401 states that a qualified pension or trust includes a trust created or organized by an employer for the exclusive benefit of his employees. The debtor provided the court with letters from the IRS and Treasury Department supporting his position that his Keogh was a qualifying tax deferred pension plan. The bankruptcy court found that the issue is whether a self-employed debtor would qualify as a participant in a Keogh plan when he is the only participant who shares the benefits and protection of the plan.
The bankruptcy court cited a U.S. Supreme Court case for the proposition that a working owner of a business is not a "participant" in an ERISA pension plan sponsored by this corporation when he is the sole owner and employee. The bankruptcy court held that the Florida legislature did not contemplate exempt funds in a Keogh plan when the claimant is the sole shareholder and sole "participant" in the plan. In re Sarah Baker 9:08-bk-11158.
posted by Jonthan Alper, asset protection and bankruptcy lawyer, Orlando, Florida
I find the court's reasoning bizarre. What evidence did it have showing that the clear text of 222.21 wasn't exactly what was intended? Even if you could prove the legislature didn't contemplate single-beneficiary plans, isn't it the purview of the legislature, not the court, to enact technical corrections?
I thought it true that under the 2005 Bankruptcy Act, beneficiaries of Sec. 401 qualified plans (including Keoghs) can exempt them under both Bankruptcy Code 522(b)(3) and 522(d)(12), making an exemption available whether the debtor chooses federal exemptions under 522(d) or state exemptions under 522(b)(3). Thus, isn't the plan an exempt asset regardless of whether the debtor's home state has opted out of the federal exemptions under Bankruptcy Code §522(d)(10)(E)?
This also seems a misinterpretation of ERISA. A single-beneficiary plan is not covered by ERISA, but that doesn't make you stop being a participant in the plan. If it did, how can you claim benefits?
Jon--Can you give me a link to the opinion. Thanks.