Matter of Pettit, Bankruptcy No. 84-93-C.
| Decision Date | 26 April 1985 |
| Docket Number | Bankruptcy No. 84-93-C. |
| Citation | 55 BR 394 |
| Parties | In the Matter of Sammy PETTIT, Dorothy Pettit, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Iowa |
James L. Spellman, Des Moines, Iowa, for debtors.
John E. Casper, Winterset, Iowa, for Union State Bank.
Thomas L. Flynn, Des Moines, Iowa, Trustee.
The question before the court is whether a profit sharing plan is exempt property. The Debtors contend that their interest in a profit sharing plan established for the employees of the Union State Bank of Winterset ("Bank") is exempt property under Section 627.6 of the Iowa Code. The Bank and the trustee have filed objections to this claim of exemption. A hearing on these objections was held on July 31, 1984. The court, now being fully advised, makes the following findings of fact and conclusions of law.
1. A profit sharing plan has been created by the Bank for the benefit of its employees. The Plan's provisions are contained in a document entitled "Amended and Substituted Union State Bank Profit Sharing Plan and Trust" ("Plan").
2. Articles I and II of the Plan state that the plan is intended to provide retirement and other benefits for the sole and exclusive benefit of the Bank's employees.
3. Debtor Dorothy Pettit was an employee of the Bank from February 7, 1979, until her employment was involuntarily terminated on April 30, 1984.
4. During her employment, the Bank made contributions to the Plan on her behalf. The value of the Debtor's interest in the fund as of December 31, 1983, was $16,042.29.
5. The Plan is a qualified plan under the Employee Retirement Income Security Act of 1974 ("ERISA") and the Debtor's interest in the Plan is fully vested.
6. A letter from the Debtors to the Bank on January 18, 1984, purports to assign the Debtors' entire interest in the Plan fund to the Bank as payment on a promissory note.
7. A letter from the Bank to the Debtors, dated February 20, 1984, states that the Bank would neither accept nor give legal effect to the assignment.
8. Article IX, Section 12 of the Plan prohibits benefits payable under the Plan from being alienated, assigned, encumbered, or otherwise transferred and states that attempts to do so will be void.
9. On May 1, 1984, the Debtors filed a Second Amendment to Schedule B-4 of their bankruptcy petition. This amendment included the claimed exemption of the Plan.
10. Management of the Plan fund is vested in the Plan trustee. Disbursements under the Plan are controlled by the trustee and a Committee consisting of the president of the Bank, two members selected by the Bank's Board of Directors and two members selected by Plan participants.
11. Article IX, Sections 2-10 of the Plan call for cash payment in lump sum to participants or their beneficiaries only upon certain specified events. Payment will commence on the earliest of the participant's 60th birthday, retirement, disability, termination of employment or death. The Committee appointed to administer the Plan payments may, in its sole discretion, authorize payment of up to seventy-five percent of the participant's benefits in a hardship case due to illness or accident.
12. The Debtors' monthly expenses for utilities, insurance, medical costs, clothes, fuel for their car and groceries exceed $750 a month.
13. Debtor Dorothy Pettit received unemployment compensation of $705 a month during the period of April 1 to August 6, 1984. Mrs. Pettit now is employed and earns approximately $700 a month.
14. Debtor Sammie Pettit is presently disabled with an ailment related to his esophagus and stomach.
15. A letter from Mr. Pettit's physician dated August 23, 1984, states that Mr. Pettit's ailment called for surgery which had only 80% chance of being effective and a recovery time of 6 months to a year. The surgery was performed in May 1984. The letter also states that Mr. Pettit has a 10% chance of developing a cancer related to his condition.
16. Dorothy Pettit is 48 years of age and Sammie Pettit is 52 years of age.
17. The Debtors claim the following property as exempt:
40 acre homestead $80,000.00
Farm machinery 8,900.00
Two motor vehicles 1,850.00
Three life insurance policies 52.00
Tax refunds 1,800.00
Wages 200.00
Household goods, furnishings
jewelry, clothing and personal
effects 5,000.00
__________
Total $97,802.00
18. The property claimed as exempt is substantially the extent of the Debtors' remaining assets. The homestead area is able to produce three acres of corn and hay.
19. The present State of Iowa's general exemption provision, Iowa Code Section 627.6, became effective July 1, 1981.
MEMORANDUM OF DECISIONThe Bank claims that the profit sharing plan has been assigned to it as payment on a $54,000 mortgage note to the Bank. The Debtors' purported assignment is based on the Debtors' January 18, 1984, letter.
Acceptance by the assignee is usually a requisite element of an assignment. 6A C.J.S. Assignments § 63 (1975); Restatement (Second) of Contracts § 327 (1981). In determining whether acceptance has occurred, the intent of the parties controls. Broyles v. Iowa Department of Social Services, 305 N.W.2d 718 at 721 (Iowa 1981). Given the Bank's letter rejecting the assignment, it is difficult to find any intent to accept the Debtors' assignment offer. In addition, the express terms of the Plan (to which the Bank is a party as employer), prohibit any assignment of the fund. The Plan itself deems all attempts to assign as void. Under these facts, there was no assignment or waiver of the Debtors' exemption rights.
The Bank also claims that this profit sharing plan is not exempt under Iowa law. Section 627.6(9)(e) of the Iowa Code states as follows:
Section 627.6 Code of Iowa (1983).
The Bank argues that a "profit-sharing plan" is not specifically mentioned in the Iowa statute, and asserts that a profit sharing plan is not a "similar plan or contract" within the intendment of the Iowa exemption statute. In support of its position the Bank first compares the federal exemption provision in Section 522(d)(10)(E) of the Bankruptcy Code to the state statute. The Bank points out that, while the two provisions are very similar, the later state statute does not include the terms "stock bonus" and "profit sharing." The argument of the Bank is that this omission was necessarily intentional and restricts the Iowa exemption.
There is no legislative history to support the Bank's restrictive interpretation of Section 627.6. Furthermore, although the words "profit sharing plan" are absent in the exemption statute, the scope of the phrase "or similar plan or contract" could easily encompass a profit sharing plan. It is significant to note that two neighboring states have not hesitated to exempt profit sharing plans. Minnesota's exemption statute states:
Subd. 24. Employee benefits. The debtor\'s right to receive a payment, or payments received by the debtor, under a stock bonus, pension, profit sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.
Minn.Stat.Anno. § 550.37 (Supp.1985).
Missouri's exemption statute states:
(10)(e) A payment under a stock bonus, pension, profit-sharing, annuity or similar plan or contract on account of illness, disability, death, age or length of service, to the extent reasonably necessary for the support of such person and any dependent of such person unless:
Vernon's Anno. Missouri Stat. § 513.430 (Supp.1985).
While Iowa's statute does not specifically use the words "profit sharing plan," an examination of the Minnesota and Missouri exemption statutes would lead the court to conclude under the rule of ejusdem generis that Iowa's legislature intended a profit sharing plan under the phrase "similar plan or contract." Brown v. Bell, 146 Iowa 89, 123 N.W. 231 (1909).
It is likely that the legislature's reason for including "similar plan or contract" in the statute was to give the courts some latitude in treating varying factual situations under this exemption section. Exemption statutes are usually construed liberally in "carrying out the beneficient object of the legislation." Frudden Lumber Co. v. Clifton, 183 N.W.2d 201, 203 (Iowa 1971). The object of exemption statutes is to protect debtors and their families from the deprivation of those things "essential for their education, culture, and spiritual upbuilding." Dunbar v. Spratt-Snyder Co., 208 Iowa 490, 226 N.W. 22 (1929). It is reasonable to conclude that the state legislature, by using the terms "similar plan or contract," intended that plans having "pension" or "annuity" characteristics should be exempt. Such an intent would further the "fresh start" purpose of exemption statutes in that "pension-annuity" type arrangements are created to fill or supplement a wage or salary void.
In determining whether the instant profit sharing plan is in fact "similar" to a pension or annuity, it becomes necessary to review the characteristics of pension and annuity plans. Generally, pensions are intended to function as wage substitutes at some future period. In re Donaghy, 11 B.R. 677 (Bkrtcy.S.D....
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