453 B.R. 743
Bankr. N.D. Ill.2011Background
- Debtor filed for Chapter 7 in July 2009; CNA is Debtor's largest creditor.
- Debtor formerly employed by CNA and participated in two CNA retirement plans: a General Plan (ERISA-qualified) and an unfunded Supplemental Executive Retirement Plan (the Supplemental Plan).
- Monthly payments under the Supplemental Plan to Debtor total roughly $17,718.86; the plan is unfunded and lacks a trust, stated to be funded from CNA's general assets if reserves are created.
- The Supplemental Plan discriminates in favor of highly compensated employees and exceeds 401(a) limits, making it non-qualified for favorable tax treatment.
- Debtor amended schedules in 2010 to claim an Illinois exemption (100% of the Supplemental Plan) under 735 ILCS 5/12-1006; CNA and Trustee object to this exemption.
- The Court must determine whether the Debtor’s interest in the Supplemental Plan is exempt under Illinois law or excluded under federal bankruptcy law (11 U.S.C. § 541(c)(2)).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Supplemental Plan qualifies for Illinois exemption | Debtor argues plan is a retirement plan intended to qualify under the IRC. | CNA/Trustee contend plan is not intended to qualify, thus not exempt under 735 ILCS 5/12-1006. | Not exempt under 735 ILCS 5/12-1006. |
| Whether §541(c)(2) excludes the plan from the estate as a trust or spendthrift | Debtor contends anti-alienation clause preserves non-estate status. | CNA/Trustee argue no trust res; plan is unfunded; §541(c)(2) does not apply. | Plan not excluded under §541(c)(2). |
| Whether CNA is estopped or waived from objecting to exemption | Estoppel due to CNA's Q&A about offsets. | Trustee also objects; estoppel does not bar exemption objection; CNA lacks direct interest. | Estoppel not applicable; objection maintained. |
Key Cases Cited
- Patterson v. Shumate, 504 U.S. 753 (Supreme Court 1992) (ERISA plan restrictions can affect exempt status under §541(c)(2))
- In re Ellis, 274 B.R. 782 (Bankr.S.D.Ill. 2002) (liberal exemptions but not unlimited; intended to qualify matters)
- In re Weinhoeft, 275 F.3d 604 (7th Cir. 2001) (ERISA preemption considerations and Illinois exemption interaction)
- Morter v. Farm Credit Services, 937 F.2d 354 (7th Cir. 1991) (trust element required for §541(c)(2); mere contract lacks trust res)
- In re Simon, 170 B.R. 999 (Bankr.S.D.Ill. 1994) (anti-alienation clauses and lack of trust do not shield from §541)
- Cogan v. Phoenix Life Ins. Co., 310 F.3d 238 (1st Cir. 2002) (top-hat plans and ERISA considerations; not fully funded trusts)