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Cypen & Cypen
APRIL 28, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


On April 20, 2005 President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Effective in six months, the law creates new rules to protect tax-favored funds, including regular IRAs, Roth IRAs, 403(b) plans, 457 plans and plans qualified under IRC Section 401. Regardless of selection of federal or state exemptions in bankruptcy, the protection is virtually unlimited. Prior concerns about whether assets are in a plan that is an “ERISA-qualified plan” are gone. The standard is now “tax qualification.” (Ironically, just a few weeks ago, the Supreme Court decided that IRA assets are exempt in bankruptcy because they are “similar” to plans specified in the statutory exemption (see C&C Newsletter for April 7, 2005, Item 4). And even if a plan has not received a determination letter from Internal Revenue Service, there is still hope if (1) no prior determination to the contrary has been made by a court or IRS and (2) the retirement fund is in substantial compliance with applicable requirements of IRC or, if not, the debtor is not materially responsible for such failure.


We previously reported about the guy who cashed his dead mother’s pension checks for eighteen years (see C&C Newsletter for March 22, 2004, Item 3). When the Teachers’ Pension Fund in Chicago inquired about her status, Phillip Hyde, who has masters degrees from Harvard and NYU, claimed his mother was in a coma. Over those eighteen years, Hyde cashed 220 checks, amounting to almost $320,000. The scheme came apart when, after checking Social Security records, the pension fund called the Hyde home. Hyde even went so far as to put an obituary in the newspaper, falsely indicating that his mother had just passed away. Now, according to, Mr. Hyde will spend a year and a day in prison -- perhaps where he will find Dr. Jekyll.


The Center for Retirement Research at Boston College has produced a paper examining how various Social Security reforms could affect saving, which is a critical component of both retirement security for individuals and the long-term growth of the nation’s economy. Current trends in Social Security, 401(k) plans and personal saving suggest that individuals will need to save more money to ensure that they can enjoy a comfortable retirement. The federal government can also contribute to the nation’s saving by reducing or eliminating its budget deficit. Increased saving by either individuals or the government, of course, means less consumption today, but, by providing more money for investment, additional saving boosts productivity and long-term economic growth. The conclusion is that saving more is the best way to improve retirement income security for an aging population. Both government saving and personal saving have declined substantially in recent decades. The federal government could boost its own saving by reining in large budget deficits. Individuals could cut their current consumption to set aside more for the future. Reforms to Social Security that address the system’s funding shortfall would directly raise national saving by bolstering the government’s bottom line. Personal accounts funded through existing payroll taxes would likely have no direct effect on saving and the net indirect effects are unclear. Personal accounts funded through new revenue would directly increase saving.

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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