Restitution And Tax Collection from Retirement Accounts - Anti-Alienation (11/28/12)

In United States v. Hermann, 2012 U.S. Dist. LEXIS 166523 (ED VA 11/20/12), here [will create the link when available], the Court held that ERISA's Anti-Alienation provision for covered retirement accounts prevented forcible collection of criminal restitution from those accounts.  The Court concluded:

Although there is no Supreme Court or binding circuit authority squarely on point, there is closely analogous Supreme Court authority confirming that ERISA's anti-alienation and assignment provision bars criminal forfeiture of any interest in an ERISA plan. Thus, in Guidry v. Sheet Metal Workers National Pension Fund, 493 U.S. 365 (1990), a union sought to impose a constructive trust over the pension plan benefits owed to a union official who had pled guilty to embezzling funds from the union, in violation of the Labor Management and Disclosure Act of 1959. Id. at 367-69. On these facts, the Supreme Court rejected the effort to impose a constructive trust on the pension plan benefits, holding that ERISA's anti-alienation and assignment provision prohibited such a constructive trust. Id. at 375-76. Importantly, in reaching this conclusion, the Supreme Court declined "to approve any generalized equitable exception—either for employee malfeasance or for criminal misconduct — to ERISA's prohibition in the assignment or alienation of pension benefits." Id. The Supreme Court further explained that ERISA's anti-alienation and assignment provision "reflects a considered congressional policy choice, a decision to safeguard a stream of income for pensioners . . . even if that decision prevents others from securing relief for the wrongs done them." Id. Indeed, the Supreme Court made clear that "[i]f exceptions to this policy are to be made, it is for Congress to undertake that task." Id. And it is clear that Congress has made no such exception in ERISA or the criminal forfeiture statute. The latter, 21 U.S.C. § 853, states that forfeiture applies "irrespective of any provision of State law," but it does not except any federal law. To be sure, Guidry does not involve either an ESOP or criminal forfeiture, nonetheless these factual distinctions provide no reason in principle or policy to conclude that the result in Guidry should not control this case and bar forfeiture of defendant's interest in the ESOP.

This result finds firm support in the decisions of the Second Circuit and several district courts, all concluding that ERISA pension plans, by virtue of the anti-alienation and assignment provision, are not subject to criminal or civil forfeiture. In United States v. All Funds Distributed o/b/o to Weiss, 345 F.3d 49 (2003), the government sought equitable tolling of the statute of limitations for civil forfeiture of plan benefits that had already been distributed to plan beneficiaries. Id. at 54-55. In the course of concluding that equitable tolling was appropriate, the Second Circuit panel made clear its view that pension plan funds not yet distributed were barred from forfeiture by ERISA's anti-alienation and assignment provision. Id. at 56-58; see also United States v. Jewell, 538 F.Supp.2d 1087, 1092-93 (E.D. Ark. 2008) (holding that ERISA "provides no exceptions for inequitable or criminal conduct" to the application of the anti-alienation and assignment provision); United States v. Hargrove, No. 03CR779-02, 2006 WL 2524133 (N.D. Ill. June 26, 2006) (holding that ERISA prohibits criminal forfeiture of pension plans); United States v. Norton, No. 2:99CR10078, 2002 WL 31039138 (W.D. Va. Sept. 3, 2002) (holding that ERISA's anti-alienation provisions "protect the Pension Account from [criminal] forfeiture"). 

In summary, ERISA's anti-alienation and assignment provision bars the forfeiture of pension plan benefits in the absence of a specific congressional exception. Given that Congress has not provided such an exception, it is not proper for a court to create such an exception on equitable or other grounds.

In so holding, the Court distinguished the collection of restitution from tax-advantaged retirement arrangements, such as IRAs, which are not covered by the Anti-Alienation provions.  See United States v. Vondette, 352 F.3d 772 (2d Cir. 2003) (IRAs); United States v. Infelise, 159 F.3d 300 (7th Cir. 1998) (life  insurance annuities).

The Court also rejected the Government's argument that criminal forfeiture statutes are an exception to the Anti-Alienation provision because the were enacted later in time.  The court said (footnote omitted):

[T]his argument also fails because such an interpretation violates the presumption against implied repeals. The simple fact that one statute was passed later than the other does not lead to the conclusion that the later statute is an exception to the first, unless there is an "irreconcilable conflict." See Radzanower, 462 U.S. at 154. Here there is no such irreconcilable conflict and it is for Congress, not the courts, to craft an exception.

Finally, the Court dampened the hopes of the defendant with this concluding statement (footnotes omitted):

It is important to note that the result reached here is a narrow one: ERISA's anti-alienation and assignment provision bars the government from seeking criminal forfeiture of a defendant's interest in an ERISA protected ESOP plan. Importantly, neither reached nor decided here is whether a different result might obtain were a writ of garnishment pursuant to the Mandatory Victim Restitution Act of 1996 to be sought by an appropriate party or were a restraining order pursuant to the All Writs Act to be sought These arguments were not raised here.

For what appears to be a differing view, see the following quote from United States v. Cunningham, 866 F. Supp. 2d 1050 (SD IA 2012):

Similarly, the anti-alienation clause contained in I.R.C. § 401(a)(13)(A) does not prevent the Government from garnishing retirement benefits to satisfy a criminal judgment debt. The Government may enforce a restitution order "against all property or rights to property of the person" ordered to pay restitution, "[n]otwithstanding any other Federal law." 18 U.S.C § 3613(a). The use of the phrase "notwithstanding any other Federal law" indicates that "Congress intended to override ERISA's anti-alienation provision and allow the government to reach defendants' ERISA-covered retirement plan benefits when enforcing criminal restitution orders." United States v. Novak, 476 F.3d 1041, 1049 (9th Cir. 2007); see also DeCay, 620 F.3d at 540 ("We conclude that the language in § 3613(a) authorizing the United States to enforce a garnishment order against 'all property or rights to property' of the debtor, '[n]otwithstanding any other Federal law,' is sufficient to override the anti-alienation provision of the IRC."); United States v. Hosking, 567 F.3d 329, 335 (7th Cir. 2009) (holding that the ERISA anti-alienation clause does not prevent a district court from ordering payment from a qualified trust towards a restitution order, and noting "any property the IRS can reach to satisfy   a tax lien, a sentencing court can also reach in a restitution order"). Accordingly, the anti-alienation clause contained in § 401(a)(13)(A) does not prevent the Government from garnishing Defendant's IPERS benefits to satisfy her outstanding restitution.

Also, keep in mind that, in criminal tax cases, the restitution that is awarded to the IRS either by contract (i.e., the plea agreement) or by the court for tax-related Title 18 counts (such as conspiracy under Title 18 USC Section 371) is restitution for a tax liability that will be assessed as a tax.  And, even where restitution for the tax is not awarded, the IRS will likely move to assess the tax at issue in a criminal tax case.  As a tax, the IRS can collect from the retirement account even if otherwise protected by the Anti-Alienation provision.  See 26 USC § 6334 - Property exempt from levy, here.  Subsection (a) lists items exempt from a tax levy, but only the following retirement plans are exempt (emphasis supplied).

(6) Certain annuity and pension payments
Annuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.

For a related blog entry, see New Statute for Civil Effect of Restitution in Tax Cases (at Least Title 26 Crimes of Conviction (Federal Tax Crimes Blog 2/11/11), here.