AHM Seeks To Seize Employee Retirement Savings

The story of American Home Mortgage is a pretty sad one, it is a Melville, NY based mortgage company that fell on hard times because of the sub-prime implosion and is now ripping itself apart to pay its over one thousand creditors (many of which will see nothing). Now AHM is trying to seize the $27M of assets inside its deferred compensation plan, a plan that employees paid into, to pay off its creditors.

“The Plan participants were induced to enter into compensation deferral agreements and participate in the Plan with promises of the value of tax deferred investment growth and little if any discussion of the risks associated with insolvency,” Cleveland attorney Sean Malloy wrote in the filing. … Jeffrey Lewis, an employment benefits expert and partner with the Oakland, Calif., law firm Lewis, Feinberg, Lee, Renaker & Jackson, said it is not unusual for plans available only to select employees to end up in the hands of general creditors when companies go bankrupt.

Essentially the argument is that the deferred compensation plan wasn’t a qualified retirement plan, which exposes it to this sort of action. A qualified retirement plan receives tax benefits but is subject to strict government rules and regulations. It appears that the deferred compensation plan wasn’t qualified because, according to the Newsday article, even folks with $200,000 in income could contribute (something that’s very much regulated if it were a qualified plan, think of highly compensated employees).

I hope things work out for those folks who are looking like they’ll be hosed.