(457) Deferred Compensation Plan

[ArizonaCh13]

[optimistic1]

The 457 deferred compensation plan is exempt, you are allowed to contribute to it, to what extent, that I am unaware of.

Here is a nice link, this is the AZ trustee's webpage, I live in AZ and also work for the govt, and will be filing a 13 in the next few months.

http://www.maney13trustee.com/TrusteeExpenseGuidelines2008.9-25-08.pdf

(b) Property of the estate does not include—

(7) any amount—


(B) received by an employer from employees for payment as contributions—
(i) to—
(I) an employee benefit plan that is subject to title I of the Employee Retirement Income Security Act of 1974 or under an employee benefit plan which is a governmental plan under section 414(d) of the Internal Revenue Code of 1986;
(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986; or
(III) a tax-deferred annuity under section 403(b) of the Internal Revenue Code of 1986;
except that such amount under this subparagraph shall not constitute disposable income, as defined in section 1325 (b)(2); or
(ii) to a health insurance plan regulated by State law whether or not subject to such title;



So, you can continue to contribute to the plan, and decrease your disposable income to give less to unsecured claims, and instead continue to work on your retirement, a win-win situation.

The 457 plan does not have any employer matching % btw.

If you already have a ASRS pension being deducted from your check, the trustee might object to you also contributing to a non-mandatory 457b, just to be greedy, its their job.

[justbroke]

(edited to add: optimistic beat me to it...)

Technically, 457 plans are included in the same part of the code which "attempts" to protect contributions. That's in 11 USC 541. While it is there, and was added as part of the BAPCPA changes effective October 2005... it's not to say that you won't have to fight for it!

Now, as for the matching percentage... HHM felt, based on some cases, that the matching percent was a good yardstick for measuring Trustee displeasure. I am actually contribution 4% more than my employer match (they match 100% at 6% and I am contributing 10%) and I have had absolutely no problems or questions. This is different by District (and maybe even different by Trustee).

11 USC 541(7)(A) and 541(7)(B)
.
.
(II) a deferred compensation plan under section 457 of the Internal Revenue Code of 1986;
.
.
.
except that such amount under this subparagraph shall not constitute disposable income, as defined in section 1325(b)(2);

[optimistic1]

lol, sorry brutha, you bring up a good point though, the 1325 section, i missed that part.

[justbroke]

lol, sorry brutha, you bring up a good point though, the 1325 section, i missed that part.

No, your post has the 1325 part about it not being part of the disposable income.

[HHM]

The problem still encountered with ongoing retirement contributions is the "good faith" requirement and the "totaltiy of circumstances" objections. Courts are becoming more uniform on the Retirement "loan" repayment as that seems specifically authorized by section 1322(f). But when it comes to further retirement "contributions" courts are split.

You can usually squeak by the good faith issues if your only contribution up to the matching percentages, but ultimately, how your case will come out will depend on how the judges view the issue.

[justbroke]

The problem still encountered with ongoing retirement contributions is the "good faith" requirement and the "totaltiy of circumstances" objections. Courts are becoming more uniform on the Retirement "loan" repayment as that seems specifically authorized by section 1322(f). But when it comes to further retirement "contributions" courts are split.

I agree that the trump card for the Trustee (and any creditor) is always the "good faith" argument. This seems to be the catch all.

That Massachusetts case was a perfect example of this particular problem (well for a 401(k)). In that case (In re KIMANZI MUSILI MATI, 07-13323-JNF, District of Massachusetts), the debtor obtained a new job between filing and confirmation (this is a Chapter 13 case). The new job had more salary! The debtor basically increased his 401(k) contribution, consuming the entire difference in salary. The Trustee filed a bad faith objection and lost, with respect to the 401(k) contributions. The Court concluded that "debtors could fund their 401(k) plans in good faith as long as their contributions did not exceed the limits legally permitted by their 401(k) plans." (Noting that this was a Massachusetts court. )

You can usually squeak by the good faith issues if your only contribution up to the matching percentages, but ultimately, how your case will come out will depend on how the judges view the issue.

As usual! (Wish all Judges were the same, but then again, I don't.)

[optimistic1]

if he has a ASRS retirement pension deduction already, like me, it is quite hefty at about 9% plus an additional % ontop of that for long term disability, both of which are mandatory deductions when you work for the govt., and then to add a 457b in the mix at 7%, the trustee is likely to cry foul, atleast I would if I was in the trustee's shoes. Depending upon his wage, those deductions are in the hundreds of dollars per pay period.