The Ninth Circuit Court of Appeals has issued an opinion overturning a lower court decision and siding with the U.S. attorney in a case involving a writ of garnishment issued against a pension plan. The case is U.S. v. Novak and specifically holds that the Mandatory Victims Restitution Act of 1996 (“MVRA”), 18 U.S.C. § 3663A, in conjunction with 18 U.S.C. § 3613, constitutes a statutory exception to ERISA’s anti-alienation provision. The participant in the case had pleaded guilty to certain conspiracy charges and was ordered to pay restitution in the amount of $3,360,051.67. Of course, focus turned to a pension plan where the participant had accrued a sizable pension which was, however, a drop in the bucket compared to the total restitution ordered. At the government’s request, the Clerk of the district court issued a post-judgment writ of garnishment to the plan sponsor of the plan for amounts owed to the participant under the pension plan. The writ was issued pursuant to the garnishment provisions of the Federal Debt Collection Procedures Act (“FDCPA”), 28 U.S.C. § 3205. On March 5, 2004, the district court had issued an order quashing the writ of garnishment, which order was overturned by the Ninth Circuit. Excerpt from the opinion:
We determine that with the passage of the MVRA, Congress did what the Supreme Court in Guidry indicated it could do: enact a statutory exception to ERISA’s anti-alienation provision. We find that Congress enacted a statutory exception because (a) the MVRA is a specific collection statute designed to provide victims with restitution, and (b) Congress provided for restitution orders to be enforced like tax liens, which are enforceable against ERISA pension benefits.
Circuit Judge Fletcher issued a dissent in the case, arguing that, for there to be a statutory exception to ERISA’s anti-alienation provisions, Congress must “issue a clear statement of its intent to abrogate ERISA.” Fletcher noted that neither the MVRA nor 18 U.S.C. § 3613 contain such a directive:
This statutory scheme does not evidence a clear statement to abrogate ERISA’s anti-alienation provision. Although the statutory text does mandate restitution, it lacks any express statement (as it does for Social Security, see 18 U.S.C. § 3613(a)) that restitution owed to victims can be collected from ERISA pensions. And, as noted previously, there is nothing within ERISA calling for an exception for orders of restitution. Without an express directive in the restitution statute to seize ERISA pensions or a specific carve-out within ERISA’s anti-alienation provision, we should not create one through judicial fiat.
The majority’s decision is consistent with IRS’s view of the subject which you can read about in two previous posts: U.S. Attorneys Seeking To Levy Against Qualified Plan Assets Under the FDCPA and When the U.S. Attorney Comes Knocking . . . The majority also cites district court cases in Oklahoma, Virginia, Michigan, Louisiana, and North Carolina which are in accord with its decision. The U.S. Attorney, as well as plan sponsors, plan administrators and fiduciaries who would like to comply with such directives, but were concerned about the ERISA anti-alienation provisions, are now armed with this Ninth Circuit opinion as well.
(Query: Can payment be compelled prior to a participant’s right to receive payment under the plan? The IRS had said in a PLR (as discussed in a previous post) that the U.S. Government cannot garnishee or otherwise collect against a plan participant’s or beneficiary’s benefit until the participant or beneficiary has a right to a distribution under the terms of the plan. The Ninth Circuit doesn’t appear to address the issue in the Novak case.)