SB337

ENGROSSED

By Senator Blackwell

A BILL TO BE ENTITLED AN ACT

To amend Section 19-3B-508 of the Code of Alabama 1975, relating to qualified trusts under the federal tax code; to further define the term qualified trust; to provide for the treatment of benefits of such trusts for purposes of assignment or alienation of such accounts and the exclusion from federal bankruptcy and insolvency laws.

BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:Section 1. Section 19-3B-508 of the Code of Alabama 1975, is amended to read as follows:

§19-3B-508.

"(e)(a) As used in this section:

"(1) ASSIGNMENT or ALIENATION, and any conjugation thereof, includes any anticipation, assignment at law or in equity, alienation, attachment, garnishment, levy, execution, or other legal or equitable process. The term includes: (i) any arrangement providing for the payment to the employer or other sponsor of such plan of benefits that otherwise would be due the participant under the plan; (ii) any direct or indirect arrangement, whether revocable or irrevocable, whereby any person acquires from a participant or beneficiary of such plan a right or interest enforceable against the plan in, or to, all or any part of a plan benefit which is, or may become, payable to the participant or beneficiary; (iii) any attachment, execution, seizure, or the like, or under any form of legal process whatsoever; and (iv) the operation of any bankruptcy or insolvency laws under 11 U.S.C. § 522(b) as from time to time amended. Notwithstanding the foregoing, the term does not include those items excluded from the definition by Treasury Regulations § 1.401(a)-13(c)(2).

"(2) CODE means the Internal Revenue Code of 1986, as from time to time amended, or as at any time superseded by reenactment, recodification, or adoption of any other similar revenue law. Reference to specific sections of the code shall include references to their successor sections as a result of renumbering or recodification at any future date.

"(3) QUALIFIED ROLLOVER CONTRIBUTION means:

"a. Amounts qualifiying as nontaxable rollover contributions or direct transfers under Section 402(a)(5), 403(a)(4), 403(b)(8), or 403(d)(3) of the code before January 1, 1993;

"b. amounts qualifying as nontaxable rollover contributions or direct transfers under Sections 402(c), 402(e)(6), 402(f), 403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10), or 408(d)(3) of the code on or after January 1, 1993;

"c. Amounts treated as qualified rollover contributions under Section 408A of the code.

"(4) QUALIFIED TRUST means a "qualified trust" as such term is used in includes all trusts created or organized under Section 401(a) of the code, including, but not limited to, a trust forming part of a qualified pension plan, qualified stock bonus plan, or qualified profit sharing plan and includes any trust that would not be qualified but for this section,. A "qualified trust" includes, without limitations, any trust that has received a favorable determination letter from the Internal Revenue Service of the United States Department of Treasury to the effect that such trust is, or will be upon the satisfaction of certain administrative conditions, a "qualified trust" under Section 401(a) of the code;. "Qualified trust" also includes: (i) a "retirement annuity" described in Section 404(a)(2) of the code, including a retirement annuity that would not satisfy the requirements of Section 404(a)(2) of the code but for this section; (ii) an annuity described in Section 403(b) of the code, including an annuity that would not satisfy the requirements of Section 403(b) of the code but for this section; (iii) an individual retirement plan described in Section 7701(a)(37) of the code, including an individual retirement plan that would not satisfy the requirements of Section 7701(a)(37) of the code but for this section; (iv) any qualified annuity plan described in the code, including an individual retirement annuity and individual retirement account (IRA), rollover individual retirement account, an individual retirement plan defined as a Roth IRA under Section 408A of the code; simplified employee pension (SEP), savings incentive match plan for employees (SIMPLE IRA), or other individual retirement plan described in Section 408 of the code; a retirement bond described in Section 409 of the code, as in effect prior to January 1, 1984, including a retirement bond that would not satisfy the requirements of Section 409 of the code but for this section; (v) a any governmental plan described in Section 414(d) of the code; (vi) a church plan health savings accounts and church plans described in Section 414(e) of the code; (vii) a tax credit employee stock ownership plan described in Section 409 of the code;, including a tax credit employee stock ownership plan that would not satisfy the requirements of Section 409 of the code but for this section; and (viii) an individual retirement plan defined as a Roth IRA under Section 408A of the code. an eligible deferred compensation plan described in Section 457(b) of the code; and any other plan, contract, annuity, account, or arrangement which satisfies the requirements of Sections 401, 403(a), 403(a), 404(a)(2), 408, 408A, 409, 414(d), 414(e), or 457 of the code.

"(3)(5) TREASURY REGULATION means a valid regulation of the United States Department of Treasury codified at Title 26 of the Code of Federal Regulations. References to specific Treasury Regulations include references to amendments and future reenactments or recodifications of such regulations, regardless of how designated.

"(a)(b) Any Except where stated otherwise in this section, benefits provided under a plan, contract, annuity, account, or arrangement which includes a trust that or constitutes a "qualified trust" may not be assigned or alienated, voluntarily or involuntarily, and shall be exempt from the operation of any bankruptcy or insolvency laws under 11 U.S.C. § 522(b), as from time to time amended. This subsection may not be waived by a participant or beneficiary of any qualified plan.

"(c) Subsection (a) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, as such term is defined in Section 414(p) of the code, except that subsection (a) shall not apply if the order is determined to be a "qualified domestic relations order" in accordance with Section 414(p) of the code. However, no domestic relations order shall be deemed a qualified domestic relations order except in accordance with the procedures for such determination set forth in Section 414(p) and the related provisions of the Employee Retirement Income Security Act of 1974, as from time to time amended. Subsection (b) shall not apply to taxes owed to any local, state, or federal taxing authority, or a qualified domestic relations order as determined in accordance with the procedures for such determination set forth in Section 414(p) of the code and the related provisions of the Employee Retirement Income Security Act of 1974, as from time to time amended; contributions to a qualified trust that exceed the amounts allowed under the applicable provisions of the code and any earnings thereon, unless otherwise exempt by law, and criminal restitution orders enforced as civil judgments.

"(d) The provisions of this section shall be interpreted so as to provide restrictions on alienation and assignment to the extent, and only to the extent, the same are required for a trust within the definition of "qualified trust" herein to be a "qualified trust" under the applicable provisions of the code, notwithstanding any attempted assignment or alienation in violation of Section 401(a) or other applicable provisions of the code. It is intended that this section will constitute "a restriction of the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law" for purposes of Section 541(c)(2) of the Federal Bankruptcy Code, 11 U.S.C. § 541(c)(2), as from time to time amended. This section shall further be construed as a "state spendthrift trust law." It is further intended for this section to provide an exemption from creditors' claims within 11 U.S.C. § 522.

"(b)(d) The securing of a loan made to a participant or beneficiary of such a plan shall not be treated as an assignment or alienation under subsection (a) (b) if such loan is secured by the participant's accrued nonforfeitable benefit under the plan, contract, annuity, account, or arrangement and is exempt from the tax imposed by Section 4975 of the code by reason of Section 4975(d)(1) of the code.

"(e) The protections afforded by subsection (b) shall apply to any amounts of money or other assets distributed from a qualified trust if such distribution constitutes a qualified rollover contribution.

"(f) Money or other assets distributed from a qualified trust subject to restraint on assignment or alienation of benefits under subsection (b) are not subject to assignment or alienation for the greater of 60 days after the date of distribution or such additional period of time allowed by the Internal Revenue Service to effectuate a valid rollover if the contribution of such money or other assets constitutes a qualified rollover contribution.

"(g) Any money or other assets in a qualified trust subject to restraint on assignment or alienation of benefits under subsection (b) cease to be exempt after the account owner's death, except with respect to any money or other assets in a qualified trust owned or controlled by the surviving spouse of the deceased account owner.

"(f)(h) This section does not apply to the Employees' Retirement System of Alabama, Teachers' Retirement System of Alabama, and the Judicial Retirement Fund of Alabama."

Section 2. This act shall become effective on the first day of the third month following its passage and approval by the Governor, or its otherwise becoming law.

Trusts

Qualified Trust

Assets Protection

Federal Bankruptcy

Code Amended