After the Sixth Circuit's decision in Rhiel v. Adams rocked the benefits and bankruptcy world late last year, most of us figured that it was a far-gone conclusion that 403(b) plans would, for the most part, be henceforth included in…

After the Sixth Circuit’s decision in Rhiel v. Adams rocked the benefits and bankruptcy world late last year, most of us figured that it was a far-gone conclusion that 403(b) plans would, for the most part, be henceforth included in the bankruptcy estate, at least in states governed by the Sixth Circuit (i.e. Michigan, Ohio, Kentucky and Tennessee), unless the case were somehow overturned by the Supreme Court. (You can read about the case in this previous post–403(b) Plans Take a Turn for the Worst in the Sixth Circuit and More on the Sixth Circuit’s Bankruptcy Decision.) However, there is some disturbing albeit predictable news from the bankruptcy trenches—I have received word from bankruptcy attorneys that, even in states not governed by the Sixth Circuit, bankruptcy trustees are taking the Rhiel v. Adams decision to heart and trying to rely on the Rhiel case to include 403(b) plan assets as part of the bankruptcy estate. As you may recall, the Rhiel case held that a husband and wife’s interests in 403(b) plans were included in the bankruptcy estate and not exempt under section 542(c)(2) of the Bankruptcy Code. The case was a departure from the general rule that participants can exclude their interests in “ERISA qualified plans” from the bankruptcy estate in a bankruptcy proceeding.

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