New statute protects retirement funds
Published 07/30/98

Employees who have the benefit of utilizing an employer=s 401(k) plan, or other employer sponsored pension plan, not only reap the tax advantages, but also the advantage of generally having those pension assets protected from most creditors, so long as the pension qualifies under ERISA [a federal law]. Until recently, employees in New Hampshire who do not have such an employee benefit or who are self-employed, faced the possibility that their retirement savings may have been subject to claims of creditors when and if they find themselves in financial dire straits.

On June 26, 1998, the New Hampshire Legislature, evidently recognizing the inequity of that situation, enacted a statutory provision to help protect those retirement savings from creditors. The New Hampshire Statute, RSA 511:2 XIX, states that an interest in the retirement plan or arrangement qualified for tax exemption purposes under present or future acts of Congress, shall be unavailable for most creditors in their attempt to collect a debt.

A Aretirement plan or arrangement qualified for tax exemption purposes@ includes without limitation: trusts, custodial accounts, insurance, annuity contracts, and other properties and rights constituting a part thereof, such as: defined contribution plans and defined benefit plans as defined under the Internal Revenue Code, individual retirement accounts including Roth IRAs and education IRAs, individual retirement annuities, simplified employee pension plans, Keogh plans, IRC section 403(a) annuity plans, IRC section 403(b) annuities, and eligible state deferred compensation plans governed under IRC section 457.

Some of the above retirement plans may also be ERISA qualified employer sponsored plans and, hence, previously protected. If a transfer or rollover contribution is deemed a transfer which is fraudulent to creditors under the state=s Uniform Fraudulent Transfer Act, RSA 545-A, then the protection will not apply. For example, you would probably not be able to protect under this law a transfer of cash out of a normal bank account placed into an IRA once you start having creditor problems.

It is also extremely important to note that this new law becomes effective for retirement plans and arrangements in existence on or created after January 1, 1999, but will only apply to extensions of credit made and debts arising after January 1, 1999. To illustrate, if an individual has an IRA that is in the existence after January 1, 1999, and a credit card company is pursuing him for a debt that he incurred prior to January 1, 1999, the IRA is not protected under this new law. However, if that individual incurred a debt after January 1, 1999, that IRA may very well be protected from that creditor=s future claims.

Lastly, it is important to note that this law only prevents involuntary liens and taking of these retirement plans or arrangements, but does not prevent a financial institution or other creditor from obtaining a voluntary lien in that retirement plan, unlike under federal law where if one of these plans is ERISA qualified, generally the beneficiary of the plan is not allowed to voluntarily alienate his interests other than in certain specific situations such as in a divorce through a qualified domestic relations order (QDRO), set up and approved by the divorce court.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, PA whose legal practice includes counseling businesses and business persons on a variety of legal issues and advocating on their behalf. Attorney Marr is also an adjunct professor at Daniel Webster College where he teaches business law. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

This information is general information and may not reflect the most current legal developments, verdicts or settlements. The information provided should not be relied upon as an indication of the actual state of the law or of future developments. The information contained on the Hamblett & Kerrigan website is for informational purposes only and does not constitute legal advice. If the information referenced may be of legal importance to you, you should consult with an attorney to provide you with legal guidance and opinion as the the effect of the current law upon your situation.