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457 After Plan Sponsor Goes Bankrupt

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Please Help,

 

I have a 457 NPQDCP (Non profit qualified deferred compensation 457 plan) with a former employer. It is a pre-tax plan and the earnings have not been taxed federally, but they have been taxed for FICA. The gross funds are held in trust with AIG Retirement (in fixed investments for insurance protection I might add due to AIG and their shaky foundation). I have heard that these assets could potentially be at risk in the event of bankruptcy or litigation of my former employer. I fully expect the company to file bankruptcy within the next 2 years and will need to remove my funds if this is true. I prefer not to withdraw funds and pay the tax if possible. I am told the only rollover possibilities are to a comparable plan (not an IRA or 401K or 403B). This is impossible as i do not plan to be employed by another Non-Profit entity. My real question is since these are held by AIG in trust, do I have a risk with my former employer's bankruptcy, potential litigation, or anything else? I am only 38 so I prefer to keep this as a pre-tax plan as long as possible or until retirement to avoid federal taxation.

 

Any input or experience on this topic is requested.

 

Thanks

Todd

 

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Please Help,

 

I have a 457 NPQDCP (Non profit qualified deferred compensation 457 plan) with a former employer. It is a pre-tax plan and the earnings have not been taxed federally, but they have been taxed for FICA. The gross funds are held in trust with AIG Retirement (in fixed investments for insurance protection I might add due to AIG and their shaky foundation). I have heard that these assets could potentially be at risk in the event of bankruptcy or litigation of my former employer. I fully expect the company to file bankruptcy within the next 2 years and will need to remove my funds if this is true. I prefer not to withdraw funds and pay the tax if possible. I am told the only rollover possibilities are to a comparable plan (not an IRA or 401K or 403B). This is impossible as i do not plan to be employed by another Non-Profit entity. My real question is since these are held by AIG in trust, do I have a risk with my former employer's bankruptcy, potential litigation, or anything else? I am only 38 so I prefer to keep this as a pre-tax plan as long as possible or until retirement to avoid federal taxation.

 

Any input or experience on this topic is requested.

 

Thanks

Todd

 

 

You need to get your money out ASAP because the assets of a NP 457 plan are subject to the claims of the employer's creditors who will use all of the assets to pay the employer's debts. In this economy your employer could file for bankruptcy by year end. Since you cant roll it over to an IRA or qualfied plan, pay the taxes on it.

 

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You stated that the funds are in a Trust - I assure you that they are not (or should not), but are instead considered as general assets of the employer. A 457(b) plan sponsored by a non-profit corporation is not allowed by law/regs to put the 457(b) funds into a protected trust, but the funds must instead remain ordinary company assets.

 

Thus, as explained by Intruder, your 457(b) funds are within reach by any creditors who stand in line upon bankruptcy (you would be in that line too).

 

Since you expect the company to file bankruptcy, but you prefer not to pay the taxes now, then you have to decide which is more important to you. Have your money, but pay paxes -- or have only some (or none) of the money if the company goes bankrupt, but pay less taxes.

 

The payment to you would not be subject to the 10% excise tax that normally applies for qualified plan purposes for pre age 59.5 withdrawals. 457(b) plans are not subject to that 10% penalty.

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You stated that the funds are in a Trust - I assure you that they are not (or should not), but are instead considered as general assets of the employer. A 457(b) plan sponsored by a non-profit corporation is not allowed by law/regs to put the 457(b) funds into a protected trust, but the funds must instead remain ordinary company assets.

 

Thus, as explained by Intruder, your 457(b) funds are within reach by any creditors who stand in line upon bankruptcy (you would be in that line too).

 

Since you expect the company to file bankruptcy, but you prefer not to pay the taxes now, then you have to decide which is more important to you. Have your money, but pay paxes -- or have only some (or none) of the money if the company goes bankrupt, but pay less taxes.

 

The payment to you would not be subject to the 10% excise tax that normally applies for qualified plan purposes for pre age 59.5 withdrawals. 457(b) plans are not subject to that 10% penalty.

 

 

I was in the same boat, even the HR director suggested I take the money out. Since it was non-governmental money, I couldn't roll it into my new employers 403b plan. Play the taxes and find a way to invest it in some real value oriented stocks and make up for the taxes paid out!

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You stated that the funds are in a Trust - I assure you that they are not (or should not), but are instead considered as general assets of the employer. A 457(b) plan sponsored by a non-profit corporation is not allowed by law/regs to put the 457(b) funds into a protected trust, but the funds must instead remain ordinary company assets.

 

Thus, as explained by Intruder, your 457(b) funds are within reach by any creditors who stand in line upon bankruptcy (you would be in that line too).

 

Since you expect the company to file bankruptcy, but you prefer not to pay the taxes now, then you have to decide which is more important to you. Have your money, but pay paxes -- or have only some (or none) of the money if the company goes bankrupt, but pay less taxes.

 

The payment to you would not be subject to the 10% excise tax that normally applies for qualified plan purposes for pre age 59.5 withdrawals. 457(b) plans are not subject to that 10% penalty.

 

 

 

I was in the same boat, even the HR director suggested I take the money out. Since it was non-governmental money, I couldn't roll it into my new employers 403b plan. Play the taxes and find a way to invest it in some real value oriented stocks and make up for the taxes paid out!

It may be too late, but perhaps you can have a portion of that money taxed as a 2008 distribution, and the remainder as a 2009 distribution. Can anyone clarify if that is a possibility?

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