In re Kemmerer, Bankruptcy No. 99-01453-C.

• Decision Date: 08 February 2000
• Docket Number: Bankruptcy No. 99-01453-C.
• Citation: 245 BR 335
• Parties: In re Jon Arthur KEMMERER Elaine Marie Kemmerer, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

245 B.R. 335 (2000)

In re Jon Arthur KEMMERER Elaine Marie Kemmerer, Debtors.

Bankruptcy No. 99-01453-C.

United States Bankruptcy Court, N.D. Iowa.

February 8, 2000.

Joseph Peiffer, Cedar Rapids, IA, for Debtors.

Eric Lam, Cedar Rapids, IA, for trustee.

Wesley Huisinga, Cedar Rapids, IA, Chapter 7 Trustee.

ORDER RE TRUSTEE'S OBJECTION TO EXEMPTIONS

PAUL J. KILBURG, Chief Judge.

This matter came before the undersigned on December 21, 1999 on Trustee's Objection to Exemptions. Debtors Jon and Elaine Kemmerer were represented by Attorney Joseph Peiffer. Eric Lam represented Chapter 7 Trustee Wesley B. Huisinga. After the presentation of evidence and argument, the Court took the matter under advisement. The time for filing briefs has now passed and this matter is ready for resolution. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

STATEMENT OF THE CASE

Debtors claim an individual retirement annuity exempt under Iowa Code sec. 627.6(8)(f) (1999). This annuity was established by a rollover from a 401(k) pension plan. Trustee objects to the exemption.

FINDINGS OF FACT

The parties filed a Fact Stipulation on October 18, 1999. At trial, they agreed the Stipulation remains effective except for paragraph 17, which is completely deleted. Based on the Stipulation and evidence received at trial, the Court makes the following findings of fact.

Debtors filed their Chapter 7 petition on June 2, 1999. Debtor Jon Kemmerer was employed by Midland Press Corp. approximately five years from October 1992 through July 1996. After he terminated his employment with Midland Press, he transferred the balance from his Midland Press 401(k) pension plan into an Equi-Select individual retirement annuity, number I466982-OP. The amount of the transfer was $16,426.91. This amount consists of $12,683.73 in contributions from Mr. Kemmerer and his employer with the remainder constituting earnings. On the date of the petition, the annuity value was $21,027.82. After Mr. Kemmerer left his employment with Midland Press, he was self-employed for a time.

The Midland Press pension plan is an ERISA-qualified plan under 26 U.S.C. § 401(k). The Equi-Select annuity is an "individual retirement annuity" under 26 U.S.C. § 408(b). The transfer from the Midland Press pension plan to Equitable of Iowa was a trustee to custodian transfer to avoid negative tax consequences. The funds retain their status as "tax-qualified funds" under the Internal Revenue Code. Mr. Kemmerer may cash out the Equi-Select annuity at any time subject to taxes and a penalty for early withdrawal. On the petition date, Mr. Kemmerer was 54 years old and employed by Harvest Media.

IOWA CODE § 627.6(8)

The Iowa legislature has recently amended sec. 627.6(8). The statute in effect prior to May 17, 1999 read as follows:

627.6. General exemptions

A debtor who is a resident of this state may hold exempt from execution the following property:

. . .

8. The debtor\'s rights in:

. . .

e. A payment or a portion of a payment under a pension, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, unless the payment or a portion of the payment results from contributions to the plan or contract by the debtor within one year prior to the filing of a bankruptcy petition, which contributions are above the normal and customary contributions under the plan or contract, in which case the portion of the payment attributable to the contributions above the normal and customary rate is not exempt.

Iowa Code § 627.6(8). In 1999, the Iowa General Assembly amended section 627.6(8) by adding the following new paragraph:

NEW PARAGRAPH. f. Contributions and assets, including the accumulated earnings and market increases in value, in any of the plans or contracts as follows:

(1) Transfers from a retirement plan qualified under the Employee Retirement Income Security Act of 1974 (ERISA), as codified at 29 U.S.C. § 1001 et seq., to another ERISA-qualified plan or to another pension or retirement plan authorized under federal law, as described in subparagraph (3).

(2) Retirement plans established pursuant to qualified domestic relations orders, as defined in 26 U.S.C. § 414. However, nothing in this section shall be construed as making any retirement plan exempt from the claims of the beneficiary of a qualified domestic relations order or from claims for child support or alimony.

(3) For simplified employee pension plans, self-employed pension plans, Keogh plans (also known as H.R. 10 plans), individual retirement accounts, Roth individual retirement accounts, savings incentive matched plans for employees, salary reduction simplified employee pension plans (also known as SARSEPs), and similar plans for retirement investments authorized in the future under federal law, the exemption for contributions shall not exceed, for each tax year of contributions, the actual amount of the contribution or two thousand dollars, whichever is less. The exemption for accumulated earnings and market increases in value of plans under this subparagraph shall be limited to an amount determined by multiplying all the accumulated earnings and market increases in value by a fraction, the numerator of which is the total amount of exempt contributions as determined by this subparagraph, and the denominator of which is the total of exempt and nonexempt contributions to the plan.

For purposes of this paragraph "f", "market increases in value" shall include, but shall not be limited to, dividends, stock splits, interest, and appreciation. "Contributions" means contributions by the debtor and by the debtor\'s employer.

1999 Iowa Acts, Ch. 131, § 2, pp. 270-71. The General Assembly further stated:

EFFECTIVE DATE AND APPLICABILITY. This Act, being deemed of immediate importance, takes effect upon enactment, and shall apply to all claims of exemption under this section made on or after the day of enactment.

Approved May 17, 1999.

Id. § 3, p. 271.

STATUTORY CONSTRUCTION

When interpreting statutory language, the Iowa courts apply recognized rules of statutory construction to give effect to legislative intent. In re Eilbert, 162 F.3d 523, 527 (8th Cir.1998). In construing statutes, the courts search for the legislature's intent as evidenced by what the legislature said, rather than what it might have said. State v. Guzman-Juarez, 591 N.W.2d 1, 2 (Iowa 1999). When the text of a statute is plain and its meaning is clear, the court should not search for a meaning beyond the express terms of the statute. Id. When a statute is ambiguous, the court may resort to rules of statutory interpretation to determine the intent of the legislature. State v. Westeen, 591 N.W.2d 203, 208 (Iowa 1999). Ambiguity exists if reasonable minds may differ or be uncertain as to the meaning of the statute. In re Interest of G.J.A., 547 N.W.2d 3, 6 (Iowa 1996).

In applying rules of statutory interpretation to ambiguous statutes, "some specific matters that may be considered include (1) the object sought to be attained by the legislature, and (2) the circumstances under which the statute was enacted." Id., Iowa Code § 4.6. Other rules of statutory construction require courts to consider legislative history and the consequences of a particular construction. In re Marriage of Hutchinson, 588 N.W.2d 442, 448 (Iowa 1999).

Exemption laws in Iowa are to be liberally construed to allow debtors and their families assurance that necessary living expenses can be covered. Eilbert, 162 F.3d at 526; Allison-Bristow Community Sch. Dist. v. Iowa Civil Rights Comm'n, 461 N.W.2d 456, 458 (Iowa 1990). The Court's determinations are made in light of the purposes of the specific exemption. In re Caslavka, 179 B.R. 141, 143 (Bankr. N.D.Iowa 1995). The exemption of a pension or similar plan is intended to protect payments which function as wage substitutes after retirement, to support the basic requirements of life at a time when the debtor's earning capacity is limited. Id. at 144.

ISSUES AND ARGUMENTS

Trustee asserts arguments under three alternative theories. First, he argues the Equi-Select annuity is not within the scope of section 627.6(8)(f). Second, if the annuity qualifies as exempt under the Iowa Code, Trustee argues the exemption is limited in value to $2,000. Finally, Trustee asserts if the value is not limited to $2,000, it is nevertheless limited to $2,000, plus related earnings, for each year Mr. Kemmerer made contributions to the Midland Press 401(k) plan.

Debtors argue the Equi-Select annuity fits within the types of plans or contracts which are exempt under sec. 627.6(8)(f). They argue that the $2,000 limitation in sec. 627.6(8)(f)(3) does not apply to this rollover and the entire balance in the annuity is exempt.

INDIVIDUAL RETIREMENT ACCOUNT VS. INDIVIDUAL RETIREMENT ANNUITY

Trustee argues that the Equi-Select annuity is not exempt under sec. 627.6(8)(f) because it is an individual retirement annuity ("IRA annuity"), not an individual retirement account ("IRA"). Subparagraph (3) of sec. 627.6(8)(f) lists "individual retirement accounts" as one of the types of pensions or retirement plans which may be exempt. That subparagraph does not specifically use the term "individual retirement annuities". Trustee argues that because the list of plans and pensions in subparagraph (3) does include an IRA annuity, the Equi-Select annuity cannot be exempt under sec. 627.6(8)(f).

Courts have stated that the distinction between IRAs and IRA annuities is insignificant in evaluating whether they were exempt under sec. 627.6(8)(e). In re Huebner, 141 B.R. 405, 408 (N.D.Iowa 1992), aff'd, 986 F.2d 1222 (8th Cir.), cert. denied, 510 U.S. 900, 114 S.Ct. 272, 126 L.Ed.2d 223 (1993); see also In re Cilek, 115 B.R. 974, 976 n. 1 (Bankr.W.D.Wis.1990) (evaluating individual retirement annuity under 11 U.S.C. § 522(d)(10)(E) and perceiving no significant difference between IRAs and IRA annuities). In In re Moss, 143...