Pensions are protected under federal and state law, but the protection is not absolute. Federal law puts a strong shield around private-sector retirement plans, keeps them out of reach of most creditors and the employer’s own bankruptcy, and insures defined benefit plans through a federal agency if the employer fails. Public-sector pensions sit outside that federal framework and rely on state constitutions and statutes instead. And a short list of claimants, notably the IRS, federal criminal restitution, and ex-spouses through a court order, can still reach pension money.
How ERISA Shields Private Pensions
The Employee Retirement Income Security Act of 1974 governs retirement plans voluntarily established by private employers, covering traditional defined benefit pensions and defined contribution plans like 401(k)s.1U.S. Department of Labor. Employee Retirement Income Security Act (ERISA) Government plans, church plans, and certain others are not covered by ERISA at all.
The heart of the protection is the anti-alienation rule. Under 29 U.S.C. § 1056(d)(1), pension benefits cannot be assigned or transferred to someone else, and the tax code makes the same rule a condition of tax-favored treatment: a plan only qualifies if it prohibits assignment or alienation of benefits.2Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans – Section: Assignment and Alienation The practical effect is that ordinary creditors, holders of judgments, credit card companies, and medical billers cannot garnish or seize money that is sitting inside a qualified retirement plan.
ERISA also blocks the employer from raiding the plan. All plan assets must be held in a trust, separate from the company’s operating accounts, and used exclusively to pay benefits and cover reasonable plan expenses.3GovInfo. 29 USC 1103 – Establishment of Trust If the company later files for bankruptcy, its creditors cannot treat the pension fund as a corporate asset. Plan administrators and anyone else handling plan money carry fiduciary duties, and a breach makes them personally liable to restore losses and disgorge profits from misuse.4Office of the Law Revision Counsel. 29 USC 1109 – Liability for Breach of Fiduciary Duty
What Happens If the Plan Fails
The Pension Benefit Guaranty Corporation is the federal insurer for private-sector defined benefit pensions. When an employer goes bankrupt or terminates a plan without enough money to pay what it promised, the PBGC takes over and pays benefits up to a legal maximum. Defined contribution plans like 401(k)s are not insured by the PBGC, because those accounts belong to individual participants rather than drawing from a pooled fund.
For plans sponsored by a single employer, the PBGC’s maximum monthly guarantee in 2026 is $7,789.77 for a retiree who starts collecting at age 65 as a straight-life annuity. A joint-and-50%-survivor annuity with a same-age spouse drops the cap to $7,010.79 per month.5Pension Benefit Guaranty Corporation. Maximum Monthly Guarantee Tables Retiring before 65 reduces the guaranteed amount; retiring later increases it. Most retirees with moderate pensions receive their full benefit; workers with unusually large monthly benefits could see payments trimmed to the cap.
Multiemployer plans, common in industries like construction, trucking, and entertainment where workers move between employers covered by the same union contract, have a much lower guarantee. The maximum is $35.75 per month multiplied by years of credited service, roughly $12,870 per year for 30 years of service.6Pension Benefit Guaranty Corporation. Multiemployer Insurance Program Facts
Pensions in Personal Bankruptcy
Filing for bankruptcy does not cost you your pension. ERISA-qualified plan assets are excluded from the bankruptcy estate under 11 U.S.C. § 541(c)(2), which protects any beneficial interest in a trust where transfers are restricted under nonbankruptcy law.7Office of the Law Revision Counsel. 11 USC 541 – Property of the Estate ERISA’s anti-alienation rule is exactly that kind of restriction, so pension and 401(k) money in a qualified plan stays out of the trustee’s reach. There is no dollar cap on this exclusion.
Traditional and Roth IRAs get separate treatment. Under 11 U.S.C. § 522, retirement funds in accounts exempt from taxation under sections 401, 403, 408, 408A, 414, 457, or 501(a) can be exempted from the estate.8Office of the Law Revision Counsel. 11 USC 522 – Exemptions For IRAs, the exemption is capped at an inflation-adjusted aggregate value, currently $1,711,975 as of April 2025. Amounts rolled over from an employer plan into an IRA do not count against that cap, because they originated in an ERISA-qualified plan with unlimited protection.
Who Can Still Reach Your Pension
The federal shield has real gaps. A short list of claimants can get past it.
The IRS
The IRS can levy pension funds to collect unpaid taxes. The list of property specifically exempt from federal tax levy under 26 U.S.C. § 6334 includes unemployment benefits, workers’ compensation, and certain military and railroad retirement payments, but private-sector pension plans are not on that list.9Office of the Law Revision Counsel. 26 USC 6334 – Property Exempt from Levy Courts have held that ERISA does not override federal tax collection powers, since ERISA itself provides that nothing in the statute supersedes other federal laws. If you owe back taxes, your pension is not safe.
Federal Criminal Restitution
The Mandatory Victims Restitution Act lets the government garnish ERISA-protected retirement accounts to satisfy criminal restitution orders. Federal courts have found that the MVRA’s authorization to enforce against “all property or rights to property” notwithstanding any other federal law overrides ERISA’s anti-alienation rule. The government’s reach is limited to funds the defendant currently has the right to withdraw, so age-based withdrawal rules and similar restrictions still apply. Any accessible balance, though, is potentially available.
Divorce
ERISA carves out an explicit exception for divorce. A Qualified Domestic Relations Order is the legal instrument that directs a plan administrator to pay part of your pension to a former spouse, child, or other dependent.10Office of the Law Revision Counsel. 29 USC 1056 – Form and Payment of Benefits – Section: Assignment or Alienation of Plan Benefits Without a QDRO that meets specific legal requirements, a plan administrator cannot release funds to anyone but the participant. Courts generally treat pension credits earned during the marriage as marital property, and the QDRO sets out how the benefit is divided.
Federal government pensions under the Civil Service Retirement System or the Federal Employees Retirement System sit outside ERISA and do not accept QDROs. Instead, the divorce decree or court order must expressly direct OPM to pay a portion of the monthly benefit to the former spouse, using model language OPM publishes for that purpose.11U.S. Office of Personnel Management. Court-Ordered Benefits for Former Spouses – Civil Service Retirement System, Federal Employees Retirement System The former spouse must file a certified copy of the order with OPM to claim benefits. State and local government pensions follow their own procedures under each retirement system’s rules.
Money You’ve Already Withdrawn
This is the exception people miss most often. ERISA protects money inside a qualified plan. Once you take a distribution and deposit it into a regular bank account, the federal shield largely disappears. The funds become ordinary personal assets, and creditors with valid judgments can pursue them through ordinary garnishment. Commingling pension distributions with other money makes any surviving protection harder to argue. Some states shield certain pension income after distribution, but the protection is typically far weaker than what ERISA provides. If creditors are a concern, keeping money in the plan longer is usually the safer choice.
Public Pensions and State Law
Teachers, firefighters, police officers, and other government employees fall outside ERISA entirely. Their protection comes from state constitutions and statutes, and it varies significantly.
Many states treat a public pension as a contractual right that forms when a worker is hired. Under that theory, the state’s obligation to pay is a binding contract, and the Contract Clause of the U.S. Constitution limits the government’s ability to impair it. States where the contract forms at the time of hire have the least flexibility to reduce benefits. States where it forms at retirement have considerably more room to adjust benefits during a worker’s career.
Some states go further, with constitutional provisions that expressly prohibit diminishing or impairing pension benefits. Those guarantees have made benefit cuts extremely difficult even during severe budget crises. Other states apply a more flexible standard, especially around cost-of-living adjustments, where courts have sometimes found that a specific COLA formula is not a core benefit and can be modified to keep the fund solvent. For a public employee, the strength of the protection depends on the state constitution and how local courts have read it.
Practical Steps to Protect What You Have
Read the annual funding notice that defined benefit plans are required to send. A significantly underfunded plan is more likely to be terminated, and if that happens, the PBGC guarantee caps become your ceiling.
If you owe back taxes and retirement is close, address the debt before distributions begin. The IRS can levy pension funds whether or not you have started drawing, but negotiating a payment plan or offer in compromise while the money is still in the plan keeps you in control of the timing.
If divorce is on the horizon, get a pension valuation early. An actuarial valuation of a defined benefit pension is more complicated than splitting a 401(k) balance, and courts divide what they can measure.