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Whose Money Is It Legally?


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#1 tbird65

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Posted 27 February 2015 - 12:05 PM

Hi, new to forum, great resource! I'm an employee of City of Chicago. I'm having a friendly argument with another employee. My understanding of the 457b is it is really a trust with the employee as beneficiary administered by a third party. The employee can only withdraw money under certain circumstances ( divorce, fin. hardship ect.). My question is under what  circumstance (if any) can the city withdraw money from the employee's 457b? I suppose if you owed the city money, they might try to go after it. If the city declared bankruptcy, would they have a claim to it? Would the city's creditors have claim to it? Is the city's end "deposit only" or are there loopholes through which the city would have access to the money already deposited? Whose money is it legally? In this age of pension agreements being torn up / rewritten everyone is suspicious.. Thanks for your reply  



#2 tony

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Posted 27 February 2015 - 02:24 PM

Hello

 

 See if this link is of any help.

 

https://www.boglehea...ic.php?p=613792 You might want to join the boglehead forums and post your question there.

 

Tony



#3 tbird65

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Posted 27 February 2015 - 03:07 PM

Thanks for the timely reply Tony



#4 John Feldt

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Posted 27 February 2015 - 06:25 PM

According to Federal law, a 457(b) plan sponsored by a government must meet the requirement that the funds be held in a trust.  At the time of the Orange County, CA problem many years ago, 457(b) plans sponsored by governments were not held in a trust and the funds were considered assets of that government. Since that time governmental 457(b) plans have been required to be protected by being held in a trust, and the funds are protected from creditors and under the care of its trustees to be invested and distributed properly. You are correct that the employee can only withdraw under specific circumstances that your plan's document will outline. Simply reaching age 59.5 won't be one of those circumstances.

 

It may be possible that if you owe the plan sponsor money, they might be able to "garnish" your 457(b) withdrawal when the funds are paid, or perhaps even submit a claim against your existing account prior to your withdrawal. However, I have not researched this at this time, so this answer should not be relied upon. I do know that the rules here differ from the usual protections that apply to a qualified plan, such as a 401(k) or profit sharing plan, since a 457(b) is not technically considered a "qualified plan". State law might apply instead.

 

In my view it's not really your money until you have it in your hands - you can't use it as collateral. But the terms of the written plan should be followed and the trustees are subject to the terms of trust, and to abide by it they should only process payment claims that meet the requirements under the legal plan's document.