In re Tomer

• Decision Date: 03 August 1990
• Docket Number: Bankruptcy No. 89-40634,Adv. No. 90-0041.
• Citation: 117 BR 391
• Parties: In re J. Lloyd TOMER and Christine Tomer, Debtors, Tamalou WILLIAMS, Trustee, Plaintiff, v. BOARD OF PENSIONS OF THE CHURCH OF GOD, INC., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Illinois

117 B.R. 391 (1990)

In re J. Lloyd TOMER and Christine Tomer, Debtors Tamalou WILLIAMS, Trustee, Plaintiff, v. BOARD OF PENSIONS OF THE CHURCH OF GOD, INC., Defendant.

Bankruptcy No. 89-40634, Adv. No. 90-0041.

United States Bankruptcy Court, S.D. Illinois.

August 3, 1990.

Terry Sharp, Mount Vernon, Ill., for Trustee.

Thomas M. Beeman, Anderson, Ind., for defendant.

MEMORANDUM AND ORDER

KENNETH J. MEYERS, Bankruptcy Judge.

Following a determination by this Court that the debtors were not entitled to exempt the interest of debtor J. Lloyd Tomer in a Church of God, Inc., pension,¹ the trustee brought this turnover action to compel the Board of Pensions of the Church of God, Inc. ("Board"), to pay over the current balance of the debtor's account for the benefit of the bankruptcy estate. The Board answered and filed a motion for summary judgment in which it asserted that the pension plan has the attributes of a spendthrift trust and is excluded from the debtors' estate under 11 U.S.C. § 541(c)(2). The trustee filed a cross motion for summary judgment, and the facts are not in dispute. Having considered the arguments of the parties, the Court finds that that portion of the debtor's pension representing his voluntary contributions to the plan is an asset of the debtors' estate and must be paid over to the trustee.

The debtor, who became an ordained minister with the Church of God in 1969, is a participant in the Contributory Reserve Pension Plan of the Church of God, Inc. The pension plan is funded by a combination of member and congregation contributions. The plan provides that the member (debtor) shall contribute 3% of his salary and the congregation which employs him shall contribute 8% of the member's salary. Both the member and the congregation may make additional optional contributions, which are to be allocated as member or congregation contributions, respectively. When a member attains the age of 60 years or completes 40 years of service, the combined accumulation of the member and congregation contributions is applied to purchase a retirement annuity for the member.

Article VIII provides that if a member becomes ineligible under the plan before the age of retirement or 40 years of service, he may elect to withdraw part or all of the accumulated member contributions. The amount remaining in the member's account will be fully vested in the member and will continue to draw interest until it can be applied toward an annuity or death benefit as provided in the plan. The member accumulation that may be withdrawn consists solely of member contributions and does not include interest on those amounts.

The debtor is 56 years of age and is still an ordained minister of the Church of God, although he is no longer employed as a minister to a congregation. The Board concedes that the debtor could become eligible to withdraw the accumulated member contributions under the plan by the act of resigning his ordination as a minister of the Church of God. The current balance in the pension fund for the debtor is $51,273.35, and the total member contribution, which is the amount the debtor actually contributed to the plan, is $6,848.10.²

At hearing, the Board argued for exclusion of the entire pension from the debtors' estate, or, in the alternative, for exclusion of those amounts other than the member accumulation portion of the pension. The Board noted that, under a clause prohibiting alienation or assignment of an interest in the plan, the plan assets could neither be levied upon by creditors nor transferred by the debtor. The Board did not dispute the trustee's characterization of the debtor's contributions as "voluntary," but asserted that since the debtor has no present right to withdraw the member accumulation portion of the plan, neither should the trustee be able to reach the debtor's interest for the benefit of unsecured creditors.

The trustee argues preliminarily that the Board has no standing to raise the issue of whether the pension constitutes property of the debtors' estate because of this Court's previous order sustaining the trustee's objection to the debtors' claim of exemption. In its order of January 3, 1990, the Court made no ruling concerning inclusion of the pension interest as property of the estate but ruled only that the debtors failed to show entitlement to an exemption under Ill.Rev.Stat., ch. 110, par. 12-1001(g)(5) (1987). The Board was not joined as a party in the prior proceeding and, while the debtors could have raised the issue of exclusion from property of the estate in that proceeding, their failure to do so does not preclude the Board from making that argument now. Cf. In re Loe, 83 B.R. 641 (Bankr.D.Minn.1988): issue of whether pension interest was property of estate determined in adversary proceeding after the trustee's objection to exemption was sustained in prior proceeding.

The scope of the bankruptcy estate under the Bankruptcy Code is quite broad and consists of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). In general, property becomes part of the debtor's estate regardless of any restrictions which may have been placed on its transfer. 11 U.S.C. § 541(c)(1). An exception to this rule is found in § 541(c)(2), which provides that "a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title." 11 U.S.C. § 541(c)(2).

The pension plan in the present case contains a standard ERISA clause restricting the transfer of a beneficial interest under the plan by alienation or assignment, "whether voluntarily or involuntarily, or directly or indirectly."³ The majority of courts addressing the exclusion of ERISA plans under § 541(c)(2) have found such anti-alienation provisions to be insufficient, without more, to result in exclusion of a debtor's benefits as property of his estate. Rather, it is generally held that a debtor's interest in a pension plan will be included in the bankruptcy estate unless the plan qualifies as a spendthrift trust under state law. In re Silldorff, 96 B.R. 859 (C.D.Ill.1989); In re Balay, 113 B.R. 429 (Bankr.N.D.Ill. 1990); see In re Perkins, 902 F.2d 1254 (7th Cir.1990).⁴

In this case, the debtor's pension provides that it is to be governed by the laws of the state of Indiana, which recognizes spendthrift trusts by statute and case law. Traditionally, there are three requirements for a spendthrift trust: (1) the settlor may not be a beneficiary of the trust plan, (2) the trust must contain a clause barring any beneficiary from voluntarily or involuntarily transferring his interest in the trust, and (3) the debtor-beneficiary must have no present dominion or control over the trust corpus. See Matter of Jones, 43 B.R. 1002 (N.D.Ind.1984); Matter of Gifford, 93 B.R. 636 (Bankr.N.D.Ind.1988). The degree of control which the beneficiary exercises over the trust corpus is the principal consideration underlying the determination of spendthrift trust status. Jones; Gifford.

In 1987, the Indiana legislature amended the state's spendthrift trust statute.⁵ Indiana Code § 30-4-3-2 now reads:

(a) The settlor may provide in the terms of the trust that the interest of a beneficiary may not be voluntarily or involuntarily transferred before payment or delivery of the interest to the beneficiary by the trustee.

(b) Except as otherwise provided in subsection (c), if the settlor is also a beneficiary of the trust, a provision restraining the voluntary or involuntary transfer of his beneficial interest will not prevent his creditors from satisfying claims from his interest in the trust estate.

(c) Subsection (a) applies to a trust that meets both of the following requirements, regardless of whether or not the settlor is also a beneficiary of the trust:

(1) The trust is a qualified trust under 26 U.S.C. § 401(a).

(2) The limitations on each beneficiary\'s control over the beneficiary\'s interest in the trust complies with 29 U.S.C. § 1056(d).

Subsection (c) of the amended statute creates an exception to the traditional rule against self-settled or beneficiary created spendthrift trusts, provided the trust is qualified under 26 U.S.C. § 401(a) and meets the requirements of 29 U.S.C. § 1056(d). In the instant case, the debtor has made voluntary contributions to the pension plan and may be said to be both a settlor and a beneficiary as to that portion of the plan consisting of member contributions. Under the traditional test for spendthrift trusts, the member accumulation portion of the plan would not qualify as a spendthrift trust so as to be excluded from the estate under § 541(c)(2). However, because the plan contains an anti-alienation clause complying with 29 U.S.C. § 1056(d), the debtor's plan would constitute a valid spendthrift trust under Indiana Code § 30-4-3-2 despite its self-settled nature.

While amended § 30-4-3-2 alters the first requirement of a spendthrift trust that the settlor not also be a beneficiary of the trust, the additional requirement that a beneficiary enjoy no present dominion and control over trust assets remains intact. Matter of Brown, 86 B.R. 944 (N.D.Ind. 1988); Gifford. As noted above, the beneficiary's inability to gain access to or demand distribution from the trust corpus is the primary element of a spendthrift trust. The determination of whether a trust fulfills this most quintessential of requirements must be made upon examination of all aspects of a particular case. Jones; Gifford.

The Jones and Gifford decisions illustrate the factual inquiry necessary to the determination of whether a particular plan complies with the control requirement for a spendthrift trust. In Jones, the debtor could make no withdrawal from her employer's pension plan even if she discontinued participation in the plan. The only way the debtor could gain access to any...