Western Elec. Co. v. Traphagen

• Citation: 400 A.2d 66,166 N.J.Super. 418
• Parties: WESTERN ELECTRIC COMPANY, Garnishee-Appellant, v. Evelyn C. TRAPHAGEN, Plaintiff-Respondent.
• Decision Date: 27 February 1979
• Court: New Jersey Superior Court – Appellate Division

Page 418

166 N.J.Super. 418

400 A.2d 66

WESTERN ELECTRIC COMPANY, Garnishee-Appellant, v. Evelyn C. TRAPHAGEN, Plaintiff-Respondent.

Superior Court of New Jersey, Appellate Division.

Argued Jan. 9, 1979.

Decided Feb. 27, 1979.

Arnold S. Cohen, Morristown, for garnishee-appellant (Pitney, Hardin & Kipp, Morristown, attorneys; Clyde A. Szuch, Morristown, on the brief).

Stephen C. Carton, Neptune, for plaintiff-respondent (Carton, Nary, Witt & Arvanitis, Neptune, attorneys).

Before Judges FRITZ, BISCHOFF and MORGAN.

The opinion of the court was delivered by

MORGAN, J. A. D.

At issue on this appeal is whether an employee's interest in a private pension fund, designated an approved plan by the United States Department of Labor under the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 Et seq., can be reached by garnishment to satisfy a former wife's judicially declared right to alimony. Subsumed thereunder are issues concerning the extent of federal preemption of state action affecting private pension plans covered by ERISA and the presence Vel non of constitutionally interdicted conflict between ERISA's proscription against "assignment and alienation" of pension income, 29 U.S.C.A. § 1056(d), and state statutory authority permitting garnishment of a defaulting spouse's income to satisfy a claim for alimony. N.J.S.A. 2A:17-56.1.

There being no dispute concerning the facts pertinent to these issues, the controversy herein can be disposed of as a matter of law. A judgment of divorce, entered on August 8, 1977 and filed August 26, 1977 in the Superior Court of New Jersey, ordered Kenneth E. Traphagen, a former employee of Western Electric Company (Western), to pay his former spouse, Evelyn C. Traphagen, $2,462.60 plus alimony of $335 a month. Not having received monies in compliance with this order, the wife sought to reach a portion of Traphagen's income interest in his pension from Western, and on November 7, 1977 a notice of motion for an order of execution for the payment of alimony was served on Western. Western, the garnishee, appeared in opposition and argued unsuccessfully against entry of the requested order, and again at a subsequent motion for reconsideration based upon promulgation of Treasury Regulation § 1.401(a)-13, 43 C.F.R. 6942-44 (1978). Western appeals from entry of the order of garnishment.

Western's pension plan, which provides Traphagen with a net monthly pension benefit of $851.34, is covered by the terms and conditions of ERISA. Pertinent to the issues raised herein, the plan contains a proscription against the assignment and alienation of pensions. ¹ This proscription is mandated by 26 U.S.C.A. § 401(a)(13), and 29 U.S.C.A. § 1056(d)(1) of ERISA, provisions critical to a disposition of the issues raised herein. 29 U.S.C.A. § 1056(d), effective January 1, 1976, provides in relevant part:

(1) Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.

(2) For the purposes of paragraph (1) of this subsection, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment, or of any irrevocable assignment or alienation of benefits executed before September 2, 1974. The preceding sentence shall not apply to any assignment or alienation made for the purposes of defraying plan administration costs. * * *

A cognate amendment to the Internal Revenue Code of 1954 was made consistent with the ERISA proscription against assignment or alienation. 26 U.S.C.A. § 401(a)(13) now provides:

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. For purposes of the preceding sentence, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment made by any participant who is receiving benefits under the plan unless the assignment or alienation is made for purposes of defraying plan administration costs. * * * This paragraph shall take effect on January 1, 1976 and shall not apply to assignments which were irrevocable on September 2, 1974.

Regulations, which were adopted by the Treasury Department and upon which Western relied in its reargument, interpret the statutory proscription against assignment or alienation to include involuntary transfers by "attachment, garnishment, levy, execution or other legal or equitable process." Treas. Reg. § 1.401(a)-13, 43 C.F.R. 6942-44 (1978). ² The foregoing statutory provisions and their administrative implementation constitute the essential predicate for Western's challenge to the constitutional validity of the garnishment order here under consideration.

Western's attack is two-fold. First, it contends that N.J.S.A. 2A:17-56.1, which expressly authorizes execution on pension benefits in satisfaction of orders for alimony, is, to the extent of its attempted application to pension benefits covered by ERISA, preempted by that federal enactment and that any action taken thereunder, such as the order challenged here, runs afoul of the Supremacy Clause of the United States Constitution. ³ Second, but related, Western contends that the order of garnishment and the statute authorizing it, being inconsistent with ERISA's proscription against "assignment or alienation" of pension benefits, is similarly subversive of the Supremacy Clause command.

Appellant's argument that N.J.S.A. 2A:17-56.1 is preempted by ERISA does not require the presence of an actual conflict between that enactment and any particular ERISA provision. All that is required is an express or clearly implied congressional intent that ERISA has so fully occupied the private pension field as to foreclose any state action, consistent or not, in that area. See Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581 (1940); Florida Avocado Growers v. Paul, 373 U.S. 132, 83 S.Ct. 1210, 10 L.Ed.2d 248, 256-257 (1963). Western's argument concerning preemption would, therefore, be dispositive of this matter in the event the challenged state law is not in conflict with a federal enactment. Quite obviously, if such a conflict is found, the state law falls by that reason alone under the Supremacy Clause. Hence, as a proffered additional ground for appeal, preemption must be considered, and we undertake this phase on the assumption that N.J.S.A. 2A:17-56.1 does not conflict with the anti-assignment provisions of ERISA and the Internal Revenue Code. Whether such a conflict exists will be considered later in connection with Western's contention that it does.

Western's preemption argument is premised on 29 U.S.C.A. § 1144(a) which provides, in relevant part, that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered thereby. Concededly, federal legislation in a field may be so pervasive that it precludes any state regulation of the same field even though the challenged state enactment and the preemptive federal law are not directly in conflict. See Malone v. White Motor Corp., 435 U.S. 497, 98 S.Ct. 1185, 55 L.Ed.2d 443 (1978); State v. Jersey Central Power & Light Co., 69 N.J. 102, 111-115, 351 A.2d 337 (1976). Western contends that ERISA constitutes that kind of legislation. We disagree.

In preemption matters the purpose of the allegedly preempting legislation is a vital consideration. Doubtless § 1144(a) was intended to insure ERISA's broad preemptive effect to secure uniformity in regulation of covered pension plans. State laws which relate to such benefit plans in the manner in which ERISA relates to them, or which burden such plans with additional regulation, must be regarded as falling within ERISA's preempting scope despite the absence of conflict with any of its provisions. Standard Oil of California v. Agsalud, 442 F.Supp. 695, 706-707 (N.D.Cal.1977). We do not, however, read § 1144(a) as evidencing a congressional intent to preempt every state law, or action thereunder, having even the most tangential effect on covered pension plans. Stone v. Stone, 450 F.Supp. 919, 932 (N.D.Cal.1978), appeal filed No. 78-2813 (9 Cir. May 26, 1978); Time Ins. Co. v. Dept. of Industry, Labor & Human Relations, 46 U.S.L.W. 2369, 2370 (Wis.Cir.Ct.1978). Before the Supremacy Clause will demand that state law relating to enforcement of family law decrees be overridden, such law must do "major damage" to "clear and substantial" federal interests. Hisquierdo v. Hisquierdo, --- U.S. ----, 99 S.Ct. 802, 59 L.Ed.2d 1 (1979).

Hence, in considering the relationship between ERISA and N.J.S.A. 2A: 17-56.1, which Western contends is preempted to the extent it authorizes garnishment of private pension funds, we observe that the state enactment does not purport to regulate pension funds or the way in which they are administered. Congressional objectives of uniformity in regulation are not therefore being subverted by its implementation. Nothing in the garnishment statute jeopardizes the continued solvency of such funds or impairs congressional interest in insuring their collectibility on an employee's retirement. Rather, the challenged enactment concerns only how a pensioner is to dispose of his benefit payment and whether he is to enjoy it unhindered by the judicially declared needs of those dependent upon him, a matter recognized as falling within traditional areas of state, rather than federal, concern. See Ray v. Atlantic Richfield Co., 435 U.S. 151, 98 S.Ct. 988, 55 L.Ed.2d 179 (1978); Wissner v. Wissner, 338 U.S. 655, 70 S.Ct. 398, 94 L.Ed. 424 (1950); Biles v. Biles, 163 N.J.Super. 49, 394 A.2d 153 (Ch.Div.1978). N.J.S.A. 2A:17-56.1 does no "major damage" to "clear and substantial" federal interests. Hisquierdo v. Hisquierdo, supra.

In the absence of conflict with the express or even implied conditions of the act, w...