To be ERISA-qualified, a retirement plan must be tax-qualified under Section 401 of the Internal Revenue Code, (ask your accountant) and it must include what is called an anti-alienation provision. Tax qualification is fairly straightforward. Once the IRS has determined that a plan is qualified, that decision is final unless the IRS revokes it. The anti-alienation provision is a federal provision states "[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated" which means that the assets in an ERISA pension plan are not available to creditors.

Conversely, a private retirement plan that is not ERISA-qualified is not automatically exempt from judgment creditors. It doesn’t necessarily mean the funds won’t be exempt; it just means that formalities, such as filing a Claim of Exemption in the event of a levy, must be followed in order to protect these assets.

Self-employed retirement plans, IRAs and annuities are exempt only to the extent provided by state law. For example, in California, the only non-ERISA retirement plan assets that are exempt from creditors are those necessary to provide for your support when you retire, and for the support of your spouse and dependents, taking into account all resources that are likely to be available for your support when you are no longer working.

From an asset protection standpoint, it is wise to consider maximizing the earnings that you place into your ERISA retirement plan. In addition to the benefit of deferred income tax, you obtain substantial protection against creditors while the funds remain in the retirement plan. In most instances, funds are protected until they are distributed out of the retirement plan and placed in your hands.