403(b) Interests Excluded from Bankruptcy Turnover

The U.S. Bankruptcy Court for the Southern District of Ohio has ruled the interests of seven debtors in Employee Retirement Income Security Act (ERISA) Section 403(b) plans did not have to be turned over to the Chapter 7 trustees of the debtors’ estates.

The court found that the 403(b) plan sponsored by OhioHealth Corp. qualified as a trust that is excluded as property under bankruptcy law.

The court noted in its opinion that a property interest is excluded from property of the estate under the code if the interest is a beneficial interest in a trust; there is a restriction on the transfer of the interest; and the restriction is enforceable under applicable nonbankruptcy law.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The “legal question before the Court involves the interpretation of Retirement Plan documents,” the opinion said. When applying the three-pronged test to the OhioHealth plan, the court noted the plan document established a trust and trustee for the plan. The OhioHealth plan also includes a restriction on the transfer of the interests of its beneficiaries.

Finally, the court determined the plan was an Employee Retirement Income Security Act (ERISA)-governed plan, so the transfer restriction was applicable under ERISA’s anti-alienation provisions.

The same test, however, did not apply to a 403(b) plan in which a seventh debtor participated. The 403(b) plan sponsored by Grady Memorial Hospital for which annuities were provided by The Variable Annuity Life Insurance Company (VALIC) did not constitute a trust, the court determined.

However, the court denied for a different reason the motion that the participant’s interest in the VALIC plan be turned over to the Chapter 7 trustee of her estate. The trustee did not prove that the participant was entitled to a distribution under the VALIC Plan, and since the participant did not have a right to her interests in the plan, they could not be turned over.

The court noted that in the VALIC plan participants do not hold legal title to the monies invested in their account, nor do they hold title to any shares in the mutual funds purchased by VALIC. Further, a participant’s right to the 403(b) benefits prior to age 59 세 were triggered by one of four distributable events: separation from service with the employer, death, disability, and hardship.

The case is Rhiel v. OhioHealth Corp. (In re Hunter), Bankr. S.D. Ohio, No. 03-68413, 1/24/08.

Fund Assets Swell to $12T in December

The combined assets of the nation's mutual funds decreased by $30.4 billion, or 0.3%, to $12.04 trillion in December, according to the Investment Company Institute (ICI).

Long-term stock, bond, and hybrid mutual funds had a $2.69 billion net inflow in December after a November outflow of $7.11 billion. Stock funds posted an inflow of $1.29 billion in December, compared to an outflow of $9.94 billion in November.

Among stock funds, world equity funds posted an inflow of $9.26 billion in December versus an inflow of $4.64 billion in November. Funds that invest primarily in the U.S. had an outflow of $7.96 billion in December versus an outflow of $14.58 billion in November.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Bond funds had an inflow of $584 million in December, compared to an inflow of $1.96 billion in November. Taxable bond funds had an inflow of $4.06 billion for the month, while municipal bond funds had an outflow of $3.48 billion.

Money market funds had an inflow of $35.5 billion in December, compared to an inflow of $101.3 billion in November. Funds offered primarily to institutions posted an inflow of $16.6 billion, and funds offered primarily to individuals took in $18.8 billion.

Hybrid funds posted a December inflow of $810 million.

The latest ICI data is available here.

«