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LegalGround >> Steve72 - ERISA??


3/4/08 5:47 PM
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seg
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Edited: 04-Mar-08
Member Since: 03/28/2005
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I have a 401(k) plan administrator as a client.  The client was served with a writ of continuing garnishment by the U.S. attorney's office relating to an employee of an employer whose 401(k) plan is administered by my client.

Apparently the employee was a bad boy and owes criminal restitution to Uncle Sam.  My understanding is that normally ERISA's anti-alienation provisions would prevent the garnishment of a 401(k) plan balance, but that this is trumped by the Fair Debt Collection Procedure Act, and that therefore the feds can garnish the employee's 401(k) plan balance.

Sound right?

3/5/08 10:27 AM
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Steve72
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Edited: 05-Mar-08
Member Since: 01/01/2001
Posts: 49235
FDCPA doesn't trump ERISA, but it's not preempted by it either. First question: is the guy currently receiving benefits, or is the writ intended to force the plan to disgorge monies held in an account? if distributions are being made, then the writ should be assessed against the distributions (i.e., the IRA or individual to whom the money is paid.) If, as seems likely, the money is not being paid out, it gets more complicated. The answer, IMO, depends on what the claim is for. There's a lot of authority that states that tax liens and levies may be applied against ERISA plans regardless of ERISA 206(d)....but I'm fairly certain that it's limited to tax liens, and not general criminal penalties or restitution (with one exception described below). There is also a "bad boy clause" in ERISA 206(d)(4)(A), which states that levies for crimes involving the plan (e.g., if the participant is also a fiduciary to the plan, and engages in a prohibited transaction) may be assessed against a participant's account balance. If the writ of garnishment is not for either of those items, then the participant has an argument that the plan should not comply with the writ. I have clients in similar circumstances who have filed an interpleader action to get some sort of court authority to avoid paying the wrong party.
3/5/08 10:27 AM
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Steve72
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Edited: 05-Mar-08
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See? Fascinating stuff.
3/5/08 11:00 AM
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Edited: 05-Mar-08
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Guy is not currently receiving benefits, and I am almost positive that the naughty activity has nothing to do with the plan, I think the employee at issue is just some flunky employee, not an owner or plan trustee or anything like that.  Like usual, I have about 3 facts and I am supposed to figure it out from there.

I have looked at a few district court cases that seem to say that under the FDCPA criminal restitution orders are treated like tax liens for purposes of anti-alienation, and thus may be garnished.

See e.g., U.S. v. Clark, 94 AFTR 2d 2004-5020 and cases cited therein, and PLR 200426027. 

Does that help?  Thanks for lending your experitse.

 

3/5/08 11:25 AM
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Steve72
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Edited: 05-Mar-08
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I stand corrected. I do believe those are helpful, particularly if any of those cases are in your circuit. I would still advise caution. The PLR is helpful, but only deals with the IRS side. There are still the parallel provisions under ERISA. The downside of complying with the garnishment order is that the participant, down the line, claims that his rights under ERISA were violated, and plan assets misused. He could then sue your client for payment. Based on skimming those cases, I think you're right that complying with the order is the stronger position, but I'd definitely outline the risks for the client.
3/5/08 11:33 AM
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Edited: 05-Mar-08
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Cool, thanks for your help.  Please enjoy these breasts as a token of my appreciation.

Tori Praver

3/5/08 11:40 AM
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Steve72
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Edited: 05-Mar-08
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*Enjoys breasts*
3/5/08 4:05 PM
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Steve72
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Edited: 05-Mar-08
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*Enjoys own breasts*

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