474 P.3d 346
Okla.2020Background
- Eddie Adams worked ~33 years for Boardman, LLC under employment agreements that included a "Deferred Bonus" added in 2014 and carried into a 2017 Amended and Restated Employment Agreement.
- The Deferred Bonus initially valued at $100,000 (adjusted to $181,825) vested 20% per year over five years and fully vested January 1, 2019.
- The Restated Agreement expressly amended the Deferred Bonus to comply with I.R.C. § 409A and provided payment in five equal annual installments beginning January 1, 2020 (with interest).
- Adams filed Chapter 7 bankruptcy on October 31, 2019 and received the first installment in January 2020.
- Adams claimed the remaining deferred compensation (~$197,623.78 payable over five years) exempt under 31 O.S.2011, § 1(A)(20); Trustee objected. The federal bankruptcy court certified the legal question to the Oklahoma Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the § 409A-structured Deferred Bonus is an interest in a "retirement plan or arrangement" under 31 O.S. §1(A)(20) | Adams: The deferred structure and purpose qualify it for the retirement-plan exemption | Trustee: The bonus is a non-retirement performance incentive/contractual right, not a retirement plan | Held: No — statute applies only to plans/arrangements designated for retirement; the §409A bonus is not a retirement plan |
| Whether the Deferred Bonus is "qualified for tax exemption or deferment purposes" under §1(A)(20) | Adams: Compliance with §409A renders the arrangement tax-deferred and thus exempt | Trustee: §409A plans are "nonqualified deferred compensation" and are distinct from I.R.C. qualified employer plans (e.g., §401, §403, §408, §457) | Held: No — §409A plans are nonqualified under the I.R.C. and therefore do not meet the statute's "qualified" requirement |
Key Cases Cited
- Security Bldg. & Loan Ass'n v. Ward, 50 P.2d 651 (Okla. 1935) (explains exemption purpose: protect debtor necessities and construe exemptions narrowly)
- In re Walker, 959 F.2d 894 (10th Cir. 1992) (recognizes §1(A)(20) as protecting retirement funds)
- In re Gee, 124 B.R. 581 (Bankr. N.D. Okla. 1991) (holds an employer annuity from a sales bonus is not a "retirement plan" under §1(A)(20))
- In re Cella, 128 B.R. 574 (Bankr. W.D. Okla. 1991) (concludes §1(A)(20) is intended to apply only to retirement funds)
- In re Jokiel, 453 B.R. 743 (Bankr. N.D. Ill. 2011) (concludes a §409A plan did not qualify for state-law exemption)