Pension and Profit-Sharing Plan Creditor Protection in Florida

Florida law exempts pension plans and profit-sharing plans from creditor claims. Section 222.21 protects any money or assets payable to a participant or beneficiary from a tax-qualified retirement fund or account, and the exemption has no dollar limit. The statute carves out only two claims: an award under a qualified domestic relations order, plus the elective share of a surviving spouse.

The protection covers traditional defined benefit pensions, profit-sharing plans, 401(k) plans, 403(b) plans, money purchase plans, and other qualified retirement arrangements. It reaches everything the plan holds or owes for the participant, from the employer’s contributions to a benefit that has already come due.

How Does ERISA Protect Pension and Profit-Sharing Plans from Creditors?

ERISA’s anti-alienation provision bars creditors from reaching funds held inside an employer-sponsored retirement plan that covers non-owner employees. A judgment creditor cannot serve a writ of garnishment on the plan trustee to intercept benefits before they are distributed.

ERISA protection is exceptionally strong. In Guidry v. Sheet Metal Workers National Pension Fund, the U.S. Supreme Court refused to let a union collect an embezzlement judgment from its former officer’s pension benefits, holding that courts may not create equitable exceptions to the rule. The Court read the anti-alienation provision as a general bar on garnishing pension benefits and saw no meaningful difference between garnishment and a constructive trust.

ERISA’s anti-alienation rule has three express exceptions: a qualified domestic relations order (QDRO), a voluntary revocable assignment of up to 10 percent of a benefit payment, and certain offsets in the plan’s favor. A QDRO permits a former spouse to receive a share of the participant’s retirement benefits as part of a divorce. Florida law recognizes this exception and provides that the alternate payee’s interest under a QDRO is itself exempt from the alternate payee’s own creditors other than the Department of Revenue.

Federal tax debts are different. The IRS levies under a statute that overrides every exemption except the ones the tax code itself lists. Private retirement plan benefits are not on that list, so ERISA’s anti-alienation rule does not stop a federal tax levy.

Are Solo Retirement Plans Protected from Creditors in Florida?

Solo retirement plans are protected from creditors in Florida, but the protection comes from the state exemption alone, because ERISA does not cover them. A plan whose only participants are the owner, or the owner and a spouse, is not an ERISA plan at all under the Department of Labor’s regulation. A solo 401(k) or an owner-only defined benefit plan therefore gets no federal anti-alienation protection, and a SEP-IRA gets none because ERISA’s anti-alienation rule does not apply to individual retirement accounts.

Florida’s statute covers what ERISA leaves out. Since 2005, Section 222.21 has exempted any fund or account maintained under a plan the IRS has approved or determined to be tax-exempt, whether or not any part of ERISA covers the plan. The Eleventh Circuit confirmed this in In re Baker, holding that the statute requires qualification under the Internal Revenue Code rather than compliance with ERISA. Against an ordinary judgment creditor in Florida, an owner-only plan is therefore protected without a dollar limit.

A physician in solo practice can establish a defined benefit plan, contribute to it each year, and keep those contributions exempt from a malpractice judgment without hiring a single employee. The state exemption has limits of its own. A former spouse holding a qualified domestic relations order can reach the plan, and so can a surviving spouse enforcing an elective share. Section 222.30 can also unwind a contribution if the owner’s purpose was to hinder, delay, or defraud a judgment creditor.

Defined Benefit Pension Plans

Defined benefit pension plans promise a specific monthly benefit at retirement based on salary history and years of service. Florida law protects the plan whether the participant is still working, has left the employer, or has started drawing the benefit, because the statute exempts whatever the plan still owes the participant. A plan with a single owner-participant is covered on the same terms, since the exemption does not require ERISA compliance.

Defined benefit plans allow the largest annual contributions of any retirement plan. Federal law caps the benefit a defined benefit plan may promise, not the dollars contributed each year. The contribution needed to fund a large benefit for an owner near retirement can therefore exceed the annual limit that binds a 401(k). For a business owner who faces litigation exposure, each contribution moves exposed cash into an exempt plan, subject to the fraudulent conversion limit in Section 222.30.

Profit-Sharing Plans and Money Purchase Plans

Profit-sharing plans allow employers to make discretionary contributions based on company profits. The contributions and their investment earnings are allocated to individual participant accounts and are exempt from creditor claims while held within the plan.

Money purchase pension plans require fixed annual employer contributions based on a formula set in the plan document. Both plan types allocate contributions to individual accounts that grow tax-deferred and carry the same exemption from creditor claims under Section 222.21.

Profit-sharing plans with 401(k) features permit both employer contributions and employee salary deferrals. The combined accounts are protected. A 401(k) account receives both state statutory protection under Section 222.21 and federal ERISA anti-alienation protection when the plan includes non-owner employees.

Government and Public Employee Pensions

Florida law protects pension plans designated for teachers, county officers and employees, state officers and employees, police officers, and firefighters. These plans are governed by separate Florida statutes in addition to the general retirement account exemption under Section 222.21.

The Florida Retirement System (FRS) covers the officers and employees of every public employer that participates in it. Cities and special districts can elect to join. Its benefits and the contributions held in its trust funds are exempt from assignment, execution, attachment, and any other legal process. Municipal police and firefighter pension funds carry the same protection under their own chapters. The exemption covers both active participants still working and retirees drawing a monthly benefit.

Nonqualified Deferred Compensation Plans

Nonqualified deferred compensation (NQDC) plans do not receive the same creditor protection as qualified retirement plans. NQDC plans, supplemental executive retirement plans (SERPs), and excess benefit plans exist outside the qualified plan rules. Section 222.21 does not cover them, and ERISA’s anti-alienation provisions do not apply.

A plan labeled “Senior Executive Retirement Plan” may look like a pension and function as nonqualified deferred compensation. Protection turns on tax qualification under a Code section the statute names. The head-of-household wage exemption does not rescue it either. The Middle District of Florida’s bankruptcy court reached that result when it decided In re Stroup, 221 B.R. 537 (1997). A physician claimed his deferred compensation as exempt earnings. The court held that the payment, due only once he left the practice, was severance pay or a dividend rather than earnings under Section 222.11.

NQDC plan participants are unsecured general creditors of the employer. The assets in a NQDC plan remain part of the employer’s general assets and are available to the employer’s creditors in bankruptcy. Even when an employer sets up a rabbi trust to fund the promise, the IRS’s model trust keeps the trust assets subject to the claims of the employer’s general creditors. That exposure is the price of the executive’s tax deferral.

NQDC benefits are exposed from two directions. The employer’s creditors can reach the plan assets if the company enters bankruptcy, and the executive’s own judgment creditors can take the benefits by garnishment as they are paid. The practical response is to fill the qualified plan first and to hold other savings in the forms Florida law exempts.

What Happens to Pension Benefits After Distribution?

Pension and profit-sharing benefits keep their exemption while the plan holds them. Whether the exemption follows money a participant takes out of the plan is unsettled. Florida’s appellate courts have not decided it, and the federal bankruptcy judges who have applied Florida law to retirement account withdrawals have reached opposite results.

Those decisions turn on two facts: whether the distribution was required or chosen, and whether the money went into an account that holds nothing else. Required distributions paid into a separate account generally keep the protection. A lump sum the participant chose to take and deposited into an ordinary checking account generally does not. Rolling the money directly into an IRA avoids the question, because the rollover account is exempt in its own right.

Cash already taken out can be moved into other exempt property, such as homestead equity, an annuity, or a tenants by the entireties account owned with a spouse. Section 222.30 sets the limit. A participant who converted the cash to hinder, delay, or defraud a creditor has made a fraudulent asset conversion. That creditor can have the conversion avoided to the extent of its claim. The right to sue expires four years after the conversion. It makes no difference whether the claim arose before the money moved or after.

Homestead is the exception. The Florida Supreme Court settled that in 2001, answering a certified question from the Eleventh Circuit in Havoco of America, Ltd. v. Hill. Section 222.30 cannot cut down a constitutional exemption, so a home bought with non-exempt cash keeps its protection even when the buyer’s aim was to defeat a judgment creditor. One limit rides with that rule. A creditor can still get an equitable lien where the buyer obtained the money by fraud or egregious conduct and used it to buy, improve, or invest in the property.

Timing of Contributions

Contributions to a qualified plan are exempt when made, and a judgment creditor who wants to undo them must bring a fraudulent conversion claim under Section 222.30. The statute turns on the participant’s intent. The creditor must prove the plan was funded to hinder, delay, or defraud, and the claim may have come before or after the contribution. A contribution made after a claim arises stays exempt unless the creditor carries that burden.

A contribution that continues a pattern set years earlier carries its own evidence of a retirement purpose. A creditor’s intent case is strongest against a first-ever contribution that follows a demand letter and empties the participant’s exposed accounts.