SENATE BILL REPORT

SB 5080

BYSenators Halsan, Newhouse, Talmadge and Nelson

Changing provisions relating to exempt pension money.

Senate Committee on Judiciary

Senate Hearing Date(s):February 19, 1987; February 20, 1987

Majority Report:  Do pass.

      Signed by Senators Talmadge, Chairman; Halsan, Vice Chairman; McCaslin, Moore, Nelson, Newhouse.

Senate Staff:Lidia Mori (786-7461)

                  March 19, 1987

AS PASSED SENATE, MARCH 18, 1987

BACKGROUND:

Current state law protects the pension benefits of federal and state employees from creditors, whether in or outside bankruptcy.  Recent amendments to the federal bankruptcy law override the protections enacted in the Employee Retirement Income Security Act of 1974 (ERISA), that keep a private employee's pension benefits exempt from seizure.  As a result, the creditors of private employees who are involved in bankruptcy proceedings are being permitted to take the bankrupt employee's pension benefits, whether or not they are presently being paid to the employee.  The employee is left without retirement benefits, and there are severe tax consequences for the employer's pension plan and all fellow employees who are participants in the plan.

SUMMARY:

The pension benefits of private employees are exempt from seizure by the employee's creditors, whether in or outside of bankruptcy proceedings, when the benefits plan is regulated by ERISA or subject to the federal tax code.  The pension fund which pays the employee's benefits is also exempt. 

The employee's pension benefits are payable to a spouse, former spouse, child or other dependent of an employee to satisfy family support obligations, if provided for in a court order which satisfies the requirements of ERISA and the tax code.

The provisions which exempt the pension benefits of private employees from seizure by the employee's creditors do not apply to any plan excluded from the federal Employees Retirement Income Security Act of 1974.

Fiscal Note:      requested

Senate Committee - Testified: Richard A. Hopp