Canadian Pension Plan Not Qualified Retirement Plan

Posted by NCBRC - March 21, 2022

Under Illinois and federal law, a pension plan that is organized in Canada does not meet the definition of a qualified retirement plan and may not be exempted from the debtor’s bankruptcy estate. In re Green, No. 21-6189 (Bankr. N.D. Ill. March 9, 2022).

The debtor sought to exempt from his bankruptcy estate his $72,300 interest in a Retirement Fund which was organized in Canada. The chapter 7 trustee objected to the exemption on the basis that the plan was not a qualified retirement plan within the meaning of the state or federal exemptions.

The debtor claimed the exemption under Illinois law 735 ILCS 5/12-1006(a) which permits a debtor to exempt a retirement fund that “is intended in good faith” to qualify as such under the Internal Revenue Code, or is a pension plan created under the Illinois Pension Code.

In objecting to the exemption, the trustee pointed to IRC 401(a) which defines a qualified plan as a “trust created or organized in the United States and forming part of a . . . pension . . . plan of an employer for the exclusive benefit of his employees . . .” Because the debtor’s plan was created or organized in Canada, the trustee argued that it did not qualify as a retirement fund under the Internal Revenue Code.

The debtor argued that the Illinois exemption is broad enough to encompass IRC section 404A, which deals with qualified foreign plans, and that his plan qualifies under that provision. The court was unpersuaded. It found section 404A was limited to the issue of deductions for employer contributions to foreign deferred compensation plans and did not create an exception to the requirement in section 401(a) that qualified pension plans be created in the United States.

As a matter of statutory interpretation, the court found the debtor’s broad interpretation of Illinois’ exemption language to incorporate foreign pension plans would require it to ignore the plain language of IRC section 401(a) which it could not do.

The court noted also that the federal exemption for pension plans found in section 522(b)(3)(C), specifies IRC provisions that create qualified plans and does not include section 404A.

The court concluded that the debtor’s pension plan was not a qualified plan under the IRC and it therefore disallowed the exemption.

Green Bankr ND Ill Mar 2022


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