California Private Retirement Plans

Plan Defect Issues Of California Private Retirement Plans


California Private Retirement Plans can be challenged directly is either of two facts can be proven by a creditor:


(1) There was no bona fide "retirement plan" to begin with; or


(2) The Plan was substantially not followed.


We'll examine each of these in greater depth below.


No Plan


To have a "private retirement plan", you quite fundamentally need a "plan". No plan, no private retirement plan.


A "plan" is greater than just having some intention to hold money for retirement. Example: Mary has a mutual fund that holds $100,000 that Mary has designated as being for her retirement. This is not a "plan".


The hallmarks of a real "plan" are:


(1) There is an employee/employer relationship;


(2) There is an agreement between an employee and an employer that certain of the employee's rights to pay will be contributed into a plan;


(3) There is a designated Plan Administrator;


(4) The plan assets will be held in trust and administered by the Plan Administrator for the benefit of the employee;


(5) The plan includes a schedule and/or formula for contributions into the plan;


(6) The plan includes a schedule and/or formula for payments to the employee upon the employee's retirement; and


(7) Prior to retirement, the employee has no access to the plan assets.


Example: John sets up a 401(k) plan through his business. The 401(k) plan meets all seven of the criteria set forth above. Assuming John substantially follows the Plan (see below), the 401(k) plan will qualify as a private retirement plan under CCP § 704.115(a)(1). See Schwartzman v. Wilshinsky, 50 Cal.App.4th 619, 57 Cal.Rptr.2d 790 (1996).


Example: Jane has an incentive stock profit-sharing plan provided by her employer, which she uses to supplement her income with the balance held for retirement purposes. She routinely takes money from the plan to fund various personal projects. The plan is not exempt under CCP § 704.115(a)(1). See In re Segovia, 404 B.R. 896 (2009).


Plan Not Followed


Merely having a plan that meets all the criteria of a private retirement plan is not good enough. Even the best-designed and most immaculate and detailed plan can be defeated by creditors if it is not closely followed. Very simply, the plan must be substantially followed by all of the employer, employee, and Plan Administrator. If the plan is not followed or is abused to the detriment of creditors, then a serious risk arises of the exemption under CCP § 704.115(a)(1) being lost.


Common ways to blow the CCP § 704.115(a)(1) exemption include, not by way of limitation:


(1) Making contributions to the plan in excess of its needs;


(2) Taking assets from the plan prior to retirement;


(3) Taking excessive loans from the plan;


(4) Using plan assets for something other than retirement purposes;


(5) Allowing the employee too much control (direct or indirect) over plan assets; and


(6) Treating the plan as the employee's personal piggy-bank.


Most private retirement plans lose their exemption not because of their design, but because they were not substantially followed.


Example: Sam takes a sizeable, unsecured personal loan from his private retirement plan, and then has his employer contribute additional moneys to the plan to keep those moneys from the employer's own creditors. The plan has been misused as something other than a private retirement plan, and the exemption is lost. See In re Daniel, 771 F.2d 1352 (9th Cir., 1985).


TEXT OF CCP § 704.115


California Code of Civil Procedure § 704.115.


     (a) As used in this section, “private retirement plan” means:


          (1) Private retirement plans, including, but not limited to, union retirement plans.


          (2) Profit-sharing plans designed and used for retirement purposes.


          (3) Self-employed retirement plans and individual retirement annuities or accounts provided for in the Internal Revenue Code of 1986, as amended, including individual retirement accounts qualified under Section 408 or 408A of that code, to the extent the amounts held in the plans, annuities, or accounts do not exceed the maximum amounts exempt from federal income taxation under that code.


     (b) All amounts held, controlled, or in process of distribution by a private retirement plan, for the payment of benefits as an annuity, pension, retirement allowance, disability payment, or death benefit from a private retirement plan are exempt.


     (c) Notwithstanding subdivision (b), where an amount described in subdivision (b) becomes payable to a person and is sought to be applied to the satisfaction of a judgment for child, family, or spousal support against that person:


          (1) Except as provided in paragraph (2), the amount is exempt only to the extent that the court determines under subdivision (c) of Section 703.070.


          (2) If the amount sought to be applied to the satisfaction of the judgment is payable periodically, the amount payable is subject to an earnings assignment order for support as defined in Section 706.011 or any other applicable enforcement procedure, but the amount to be withheld pursuant to the assignment order or other procedure shall not exceed the amount permitted to be withheld on an earnings withholding order for support under Section 706.052.


     (d) After payment, the amounts described in subdivision (b) and all contributions and interest thereon returned to any member of a private retirement plan are exempt.


     (e) Notwithstanding subdivisions (b) and (d), except as provided in subdivision (f), the amounts described in paragraph (3) of subdivision (a) are exempt only to the extent necessary to provide for the support of the judgment debtor when the judgment debtor retires and for the support of the spouse and dependents of the judgment debtor, taking into account all resources that are likely to be available for the support of the judgment debtor when the judgment debtor retires. In determining the amount to be exempt under this subdivision, the court shall allow the judgment debtor such additional amount as is necessary to pay any federal and state income taxes payable as a result of the applying of an amount described in paragraph (3) of subdivision (a) to the satisfaction of the money judgment.


     (f) Where the amounts described in paragraph (3) of subdivision (a) are payable periodically, the amount of the periodic payment that may be applied to the satisfaction of a money judgment is the amount that may be withheld from a like amount of earnings under Chapter 5 (commencing with Section 706.010) (Wage Garnishment Law). To the extent a lump-sum distribution from an individual retirement account is treated differently from a periodic distribution under this subdivision, any lump-sum distribution from an account qualified under Section 408A of the Internal Revenue Code shall be treated the same as a lump-sum distribution from an account qualified under Section 408 of the Internal Revenue Code for purposes of determining whether any of that payment may be applied to the satisfaction of a money judgment.




Published Court Opinions regarding California private retirement plans:


In re Daniel, 771 F.2d 1352 (9th Cir., 1985).

In re Bloom, 839 F.2d 1376 (9th Cir., 1988).

In re Crosby, 162 B.R. 276 (Bk.C.D.Cal., 1993).

Yaesu Electronics Corp. v. Tamura, 28 Cal.App.4th 8, 33 Cal.Rptr.2d 283 (1994).

Schwartzman v. Wilshinsky, 50 Cal.App.4th 619, 57 Cal.Rptr.2d 790 (1996).

In re Friedman, 220 B.R. 670 (9th Cir.B.A.P., 1998).

In re Phillips, 206 B.R. 196 (Bk.N.D.Cal., 1997).

In re Stern, 345 F.3d 1036 (9th Cir., 2003).

McMullen v. Haycock, 147 Cal.App.4th 753, 54 Cal.Rptr. 3d 660 (2007).

In re Rucker, 570 F.3d 1155 (9th Cir., 2009).

In re Segovia, 404 B.R. 896 (2009).

In re Simpson, 557 F.3d 1010 (2009).

In re Beverly, 374 B.R. 221 (9th Cir., B.A.P., 2011).

Marriage of La Moure, 221 Cal.App.4th 1463, 15 Cal.Rptr.3d 417 (2013).

Salameh v. Tarsadia Hotel, 2015 WL 6028927 (S.D.Cal., 2015).


Only published court opinions are included; non-published opinions are not useful as legal precedent and should not be relied upon for any purpose.




The California Private Retirement Plan: Separating Fact From Fiction (Jay Adkisson,, Dec. 28, 2015).





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