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My spouse is a county employee and she opened a 457 account a little over a year ago. Never having heard of the strange beast that is the 457, I read the literature pretty closely and had some questions for the plan representative. One of them dealt with how much exposure 457 account funds have to county creditors. Visions of Orange County CA were fresh in my mind at the time. The representative said something to the effect that legislation had just been passed (Jan 1997) that would protect these accounts. I am unsure whether he was talking about state legislation (Wisconsin) or federal legislation. And based on a reading of TMFPixy's Retirement Plan Primer, I am beginning to wonder if this legislation exists at all. Call me paranoid, but I do not relish the thought of having what is essentially our money dangling in the breeze that way. Any thoughts out there, or should I actually use the phone to call the plan administrator? Thanks in advance.
Dennis
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Greetings, Dennis, and welcome. You wrote:

My spouse is a county employee and she opened a 457 account a little over a year ago. Never having heard of the strange beast that is the 457, I read the literature pretty closely and had some questions for the plan representative. One of them dealt with how much exposure 457 account funds have to county creditors. Visions of Orange County CA were fresh in my mind at the time. The representative said something to the effect that legislation had just been passed (Jan 1997) that would protect these accounts. I am unsure whether he was talking about state legislation (Wisconsin) or federal legislation. And based on a reading of TMFPixy's Retirement Plan Primer, I am beginning to wonder if this legislation exists at all. Call me paranoid, but I do not relish the thought of having what is essentially our money dangling in the breeze that way. Any thoughts out there, or should I actually use the phone to call the plan administrator? Thanks in advance.

One major drawback to a 457 plan is the money must remain subject to the claims of the employer's creditors. I was asked a similar question some time back on the AOL site about this piece of legislation as it pertains to governmental employees. I was unsuccessful in finding anything on the subject anywhere. Therefore, so far as I know nothing has changed in that regard. If the county goes bust, the 457 plan monies will be subject to the claims of creditors.

If someone knows different, pretty please give me the pertinent legal reference/cite so I can verify it.

Regards….Pixy
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Pixy,
Okay, I broke down and used the phone. I called the Public Employees Benefits Services Corporation (PEBSCo) which is the plan administrator for my wife's 457 deferred compensation program. According to the very helpful person at the other end of the line, legislation in the form of the Small Business Job Protection Act of 1996 signed by Bill Clinton *does* protect 457 accounts from creditors (both personal creditors and those to whom your employer is beholden). The Act requires plan administrators to set up custodial accounts with banks to enable this protection (e.g., Bank One of Columbus OH for PEBSCo accounts). All "units" (i.e., counties, municipalities, etc.) are supposed to be in compliance by Jan 1, 1999. I don't know if this satisfies your request for legal citation, but I did fire off an email to PEBSCo before talking to them on the phone so more info may be forthcoming. Hope this helps.
Dennis
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Dennis, you wrote:

Okay, I broke down and used the phone. I called the Public Employees Benefits Services Corporation (PEBSCo) which is the plan administrator for my wife's 457 deferred compensation program. According to the very helpful person at the other end of the line, legislation in the form of the Small Business Job Protection Act of 1996 signed by Bill Clinton *does* protect 457 accounts from creditors (both personal creditors and those to whom your employer is beholden). The Act requires plan administrators to set up custodial accounts with banks to enable this protection (e.g., Bank One of Columbus OH for PEBSCo accounts). All "units" (i.e., counties, municipalities, etc.) are supposed to be in compliance by Jan 1, 1999. I don't know if this satisfies your request for legal citation, but I did fire off an email to PEBSCo before talking to them on the phone so more info may be forthcoming. Hope this helps.

It does and did indeed. Finally, I can nail this one down. And your info is correct as it pertains to governmental 457 plans. Those of tax-exempt organizations with 457 plans, though, will still see their accounts subject to the claims of their employer's creditors. As for you, it looks like your spouse is safe. First, the plan must be funded and that money must be held in trust. A giant leap forward for city, county, municipal and state employees with such plans.

Thanks for the post.

Regards…..Pixy
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