Smith v. Mirman, 84-1294

• Citation: 749 F.2d 181
• Decision Date: 29 November 1984
• Docket Number: No. 84-1294,84-1294
• Parties: 5 Employee Benefits Ca 2689 Alexander P. SMITH, Trustee for Stanley Jerome Mirman and Benita Bernstein Mirman, Debtors, Appellant, v. Stanley Jerome MIRMAN; Virginia National Bank, as Trustee for the Pension and/or Profit Sharing Plans of Tidewater Valu Fair Supermarkets, Inc., Lakeland Grocery Corporation, West View Foods, Inc. and 87 Grocery Corporation; Bank of Virginia; Elliot Furman and Andrew M. Fekete, Appellees. In re Stanley Jerome MIRMAN and Benita Bernstein Mirman, Debtors.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 181

749 F.2d 181

5 Employee Benefits Ca 2689

Alexander P. SMITH, Trustee for Stanley Jerome Mirman and Benita Bernstein Mirman, Debtors, Appellant, v. Stanley Jerome MIRMAN; Virginia National Bank, as Trustee

for the Pension and/or Profit Sharing Plans of Tidewater

Valu Fair Supermarkets, Inc., Lakeland Grocery Corporation,

West View Foods, Inc. and 87 Grocery Corporation; Bank of

Virginia; Elliot Furman and Andrew M. Fekete, Appellees.

In re Stanley Jerome MIRMAN and Benita Bernstein Mirman, Debtors.

No. 84-1294.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 2, 1984.

Decided Nov. 29, 1984.

Alexander P. Smith, Norfolk, Va. (Smith & Owens, Norfolk, Va., on brief), for appellant.

Leonard D. Levine, Virginia Beach, Va. (Pender & Coward, Virginia Beach, Va., on brief), and Lawrence J. Kipka, Newport News, Va., for appellees.

Before WIDENER, SPROUSE and WILKINSON, Circuit Judges.

WILKINSON, Circuit Judge:

The question presented is the validity of assignments made by an employee of his interest in an ERISA profit sharing plan, when the purported assignments were executed after corporate termination of the plan but prior to actual distribution of the plan's assets. Because benefits under the plan were fully vested upon the plan's stated termination date in December 1981, the district court held that assignments executed in January and February of 1982 were valid. Because we conclude that ERISA's anti-alienation provisions continue to govern administration of a plan's assets throughout the processes of winding up and distribution, we reverse.

Stanley Mirman was one of the participants in the Valu Fair Profit Sharing Plan (the "plan"). Following the sale of all corporate assets to another corporation, the directors of Tidewater Valu Fair Supermarkets, Inc. passed a resolution on December 6, 1981, terminating the plan as of that date and calling for assets of the plan to be distributed to participants upon approval by the Internal Revenue Service of the qualification of the plan's termination. In January and February of 1982, Mirman assigned portions of his share in the plan's funds to Elliot Furman and Andrew M. Fekete, appellees in this action. In October 1982, the IRS approved the plan's termination, relating its approval back to a proposed termination date of December 31, 1981. In December 1982, the plan administrator ordered distribution of its assets, and all funds (except those here under dispute) were distributed on December 30, 1982.

Meanwhile, on September 3, 1982, an involuntary petition in bankruptcy was filed against Stanley Mirman under Chapter 7 of the federal Bankruptcy Act, Title 11 of the United States Code. Alexander P. Smith, appellant herein, was subsequently appointed trustee (the "trustee") to administer Mirman's estate; as such, he succeeded to any interest that Mirman had in assets of the plan. The trustee sought to have the pre-bankruptcy assignments set aside, but both the bankruptcy judge and the district court judge to whom the order was appealed upheld them as valid. It is from the ruling of the district court that the trustee now brings this appeal.

The answer to the question before us hinges upon the applicability of Sec. 206(d)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1056(d)(1), which states that "Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated." We hold that this statutory requirement continued to apply to the administration of the plan's assets until December 31, 1982, the date of actual distribution. The policies underlying the unequivocal desire of Congress not to permit alienation of ERISA benefits extend throughout the pre-distribution period.

I

Congress enacted ERISA, 29 U.S.C. Sec. 1001 et seq., to establish "a comprehensive federal scheme for the protection of pension plan participants and their beneficiaries." American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 120 (2d Cir.1979). Its "most important purpose" is to "assure American workers that they may look forward with anticipation to a retirement with financial security and dignity, and without fear that this period of life will be lacking in the necessities to sustain them as human beings within our society." S.Rep. No. 93-127, 93d Cong., 2d Sess (1974), reprinted in U.S.Code Cong. & Admin.News, pp. 4639, 4849 (1974). Congress prescribed in ERISA detailed and comprehensive provisions relating to reporting and disclosure, participation and vesting, funding of plans, fiduciary responsibilities of plan administrators or trustees, enforcement, and the necessity for plan termination insurance in certain instances. Among the provisions designed to "further ensure that the employee's accrued benefits are actually available for retirement purposes" was the requirement that benefits may not be assigned or alienated. H.R.Rep. No. 93-807, 93d Cong., 2d Sess. (1974), reprinted in U.S.Cong.Code & Admin.News, p. 4734 (1974).

In order to induce employers to establish ERISA pension and profit sharing plans, Congress provided favorable tax treatment for both employers and participants in plans determined to be qualified by the Internal Revenue Service. S.Rep. No. 93-383, 93d Cong., 2d Sess. (1974), reprinted in U.S.Cong. & Admin.News, pp. 4898-99, 4960. Under the Internal Revenue Code, a qualified plan not only must reflect the anti-alienation language of ERISA itself, but must unequivocally prohibit any access to plan funds by creditors of participants. IRC Sec. 401(a)(13), 26 U.S.C. Sec. 401(a)(13), provides, in relevant part, as follows:

A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated.

The Treasury Regulation issued under this provision is even more specific Under section 401(a)(13), a trust will not be qualified unless the plan of which the trust is a part provides that benefits provided under the plan may not be anticipated, assigned (either at law or in equity), alienated or subject to attachment, garnishment, levy, execution or other legal or equitable process. Treas.Reg. Sec. 1.403(a)-13(b)(1).

The Regulation goes on to define "assignment" and "alienation" as follows:

Any direct or indirect arrangement (whether revocable or irrevocable) whereby a party acquires from a participant or beneficiary a right or interest enforceable against the plan in, or to, all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary. Treas.Reg. Sec. 1.401(a)-13(c)(ii).

Under the quoted statute and regulation, an employee's accrued benefits under a qualified plan may not be reached by judicial process in aid of a third-party creditor. See, e.g., Tenneco v. First Virginia Bank of Tidewater, 698 F.2d 688 (4th Cir.1983); General Motors Corp. v. Buha, 623 F.2d 455 (6th Cir.1980). Some courts have created an exception where the debt is support due by the employee to his spouse or children, on the grounds that part of ERISA's purpose is to benefit dependents as well as employees and that dependents are not "creditors" within the general meaning of that term. See, e.g., Stone v. Stone, 450 F.Supp. 919 (N.D.Cal.1978), aff'd, 632 F.2d 740 (9th Cir.1980), cert. denied, 453 U.S. 922, 101 S.Ct. 3158, 69 L.Ed.2d 1004 (1981) (applying community property concepts to find an ownership interest in an employee's spouse); American Telephone & Telegraph Co. v. Merry, 592 F.2d 118 (2d Cir.1979); Cody v. Riecker, 454 F.Supp. 22 (E.D.N.Y.1978), aff'd, 594 F.2d 314 (2d Cir.1979). However, benefits are generally required to be in "pay status" in order for a participant's interest to be found to be subject to garnishment for support of dependents, Monsanto Co. v. Ford, 534 F.Supp. 51 (E.D.Mo.1981), and some courts have insisted that a literal reading of the statute precludes attachment even for support of dependent family members. See, e.g., General Motors v. Townsend, 468 F.Supp. 466 (E.D.Mich.1976).

The only statutory exceptions to the strong prohibition against alienation are very narrow in scope. Section 206(d)(2) of ERISA, 29 U.S.C. Sec. 1056(d)(2). For purposes of a qualified plan, IRC Sec. 401(a)(13) elaborates upon the ERISA provision and excludes from the definition of assignment and alienation "any voluntary and revocable assignment of not to exceed ten percent of any benefit payment made by any participant who is receiving benefits under the plan ..." (emphasis added) and also allows a plan itself, but not a third party, to make a loan to a participant secured by his accrued nonforfeitable benefit, so long as other Code criteria are met. ¹ In addition, Treas. Reg. Sec. 1.401(a)-13(b)(2) excludes from prohibited creditors' attachments certain federal tax levies and executions.

Thus, a review of the relevant legislative history, case law, and statutory provisions reveals a strong public policy against the alienability of an ERISA plan participant's benefits. Even the narrow judicial and statutory exceptions to the alienation prohibition occur mainly when a participant is receiving benefits under the plan, not (as we have here), where there is a fund awaiting distribution. None of these exceptions applies to the case before us.

II

Appellees do not dispute the general principle of non-assignment. Their argument is that in the present situation, since a vote on termination was taken and distribution thereby became inevitable, an assignment should be allowed by an employee entitled to a share of the trust. Nothing in ERISA or in the Internal Revenue Code sections governing qualified plans supports such a view. In fact, the policies cited in the legislative history, in the statute itself, and in the relevant case law militate against any rights of alienability prior to actual distribution.

At the time that the corporate resolution to...