Compliance January 3, 2004

Anti-Alienation Shield Extends to Alternate Payee

March 25, 2002 (PLANSPONSOR.com) - A federal bankruptcy appeals court has held that an undistributed payment pursuant to a qualified domestic relations order (QDRO) from a retirement plan is not part of the alternate payee's bankruptcy estate.

Reported by

Nevin E. Adams

The decision by the U.S. Bankruptcy Appellate Panel for the Eighth Circuit cited the US Supreme Court decision in Boggs v. Boggs in reversing the decision of the US Bankruptcy Court for the District of Minnesota, according to the Bureau of National Affairs.

The appeals court focused on language in the Boggs decision that noted legislative intent in considering an alternate payee as a ‘plan beneficiary.’ Consequently, just as with any participant interest, the beneficiary’s interest in an ERISA-qualified retirement plan is protected by the anti-alienation provisions of ERISA, and may be excluded from a bankruptcy estate.

Case History

In September 2000, Ronald J. Nelson was awarded an interest in his former spouse’s ERISA-qualified retirement plan in the amount of approximately $71,000. Nelson was designated an alternate payee under the retirement plan by terms of a QDRO, terms that entitled him to receive a single lump-sum distribution.

Six months later, Nelson filed a Chapter 7 bankruptcy petition and claimed that his interest in the retirement plan was not property of the bankruptcy estate.

The bankruptcy court disagreed, ruling that his interest in the retirement plan was property of the bankruptcy estate.

The case is In re Nelson, B.A.P. 8th Cir., No. 01-6072MN, 3/21/02.