Thursday, November 29, 2012

In re Orkin case brief (retirement plan and bankruptcy)

 In re Orkin (Bankr. D. Mass 1994)

Facts: Debtor was sole proprietor of R/E biz. On June 22, 1992, he established the Orkin Retirement Plan. He transferred $270k into the plan, representing the proceeds of an IRA. Debtor was employer, sole employee, and sole participant. He then filed under Chapter 7 on February 24, 1994. Plan was valued at $295k. He claims its not property of the estate under §541(c)(2) as a spendthrift trust. Trustee disagrees.
Issue: Is the debtor’s retirement plan excused as property of the estate?
Holding: No. It is property of the estate b/c he has control over it and it is not ERISA qualified.
Analysis: Is the debtor’s plan “ERISA qualified?” ERISA mandates that a plan not be assignable or alienable. It also requires compliance w/ the IRC. Trustee argues that Orkin is not an employee under ERISA. Also he argues that the plan’s anti-alienation clause is unenforceable under IRC §401(a)(13).
  1. Trustee is correct in that an employer can not be an employee as well for ERISA benefits.
  2. State Law issues: Debtor can exclude a pension plan from the estate if he can show a restriction on transfer enforceable under applicable state law. Here, the debtor has the sole discretion to terminate the trust w/ 60 day’s notice so it must be included in property of the estate.
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