State Laws and Retirement Asset Protection
Although a creditor may not be able to directly get to the funds if they are protected under the Employee Retirement Income Security Act (ERISA), the creditor may still attempt to attach, levy, execute, or garnish any amounts received by the plan participant. The only thing that can possibly stop a creditor from doing so is a state law. (Of course, some types of creditors cannot be prevented from getting access to these funds at all.) So the last battle to protect retirement assets from judgment creditors is waged at the state level.
States are generally barred by federal law from taxing retirement income of its former residents or nonresidents who earned income in the state. A new law, enacted in 2006, clarifies that state taxation of retirement income is limited to the state where the retiree resides. This treatment applies whether the retirement payments are made to a retired employee or to a retired partner.
State laws protecting retirement assets from creditors come in the following two varieties:
state retirement plan exemption statutes
general wage garnishment statutes that operate similarly to state exemptions (although with garnishment statutes only a percentage of a distribution may be exempt)
Asset protection consultants suggest many convoluted ways to protect your assets. As in other areas, the best suggestion is usually the one that is the simplest.
One of the important considerations to make in the retirement planning process is where to retire. In deciding where to retire, one of the factors to consider is whether a state's laws (including its asset protection laws) are favorable to retirees. Businesses looking to locate operations in a particular state weigh such factors, so why shouldn't you?
Florida Retirement Asset Protection Laws
Florida laws protect qualified retirement and profit-sharing plans, except for payments required under a Qualified Domestic Relations Order (QDRO) — that is, an order of separation or a divorce decree. Also protected are:
U.S. government pension funds received by a debtor within three months prior to execution, attachment, or garnishment, to the extent necessary for maintenance of the debtor or the debtor's family;
state retirement system benefits; and
county officers' and employees' retirement system benefits.
Please note: nonqualified plan assets are not protected, per se — although insured nonqualified plans, by virtue of protections offered insurance products, may offer some level of safety.