Senate lawmakers unanimously adopted legislation late last week that would protect retirement plan assets from attachment in bankruptcy proceedings.
The legislation, which amends pending bankruptcy legislation, applies to all retirement plan assets, including 403(b) and 457 plans as well as Roth IRAs.
It provides a uniform federal exemption for all retirement plan assets, instead of subjecting them to varying state bankruptcy laws, and also protects retirement assets in the process of being rolled over from one plan to another.
The legislation would not let participants who have filed for bankruptcy protection wipe out outstanding loans from 401(k) and other retirement plans.
``You would still have to repay your loan to the retirement plan,'' said Randolf H. Hardock, a partner in the Washington law firm of Davis & Harman.
The legislation extends protection to assets in retirement plans that have received approval from the IRS, even if the plans were not in compliance with regulations at the time, and to plans that are not eligible to receive IRS ``determination letters,'' but are still considered tax-favored.