Court: Prisoner Pension Can Be Locked Into Prison's Accounts

May 16, 2003 ( - An inmate's pension payments deposited directly into a prison's general account for disbursement does not violate ERISA.

>The Michigan Supreme Court upheld the ruling of a state trial court that will allow the warden of the prison to appropriate and distribute the funds held in the prisoner’s account under the State Correctional Facility Reimbursement Act (SCFRA).   The court found no ERISA violations because “once pension funds are deposited in an inmate’s account, ERISA does not protect them,” according to Washington-based legal publisher BNA.

Locked Away

>Michigan’s state treasurer, under the SCFRA, sought to recover the costs of incarcerating Thomas Abbott arguing his monthly pension payments should be sent to his prison address, deposited in his prison account, and appropriated by the warden. The trial court granted this request, but the state court of appeals reversed.

>The appeals court held that ERISA’s antialienation provision barred the deposit of funds into Abbott’s prison account. Under ERISA Section 206(d)(1), benefits provided under a pension plan may not be assigned or alienated. This determination was based on State Treasurer v. Baugh , where a judge in the US District Court for the Eastern District of Michigan found a court order requiring a pension fund to make pension payments to a prisoner’s prison account against his will constituted an ERISA violation.

High Court’s Path

Michigan’s high court diverged from the federal court’s ruling.    Just because the prisoner in the earlier case did not agree to the deposit at his prison address, such a deposit did not create an assignment unless someone other than the beneficiary acquired a right in the payments.   Relying on the treasury department’s definition, the court said it “plainly contemplates a transfer of the interest to another person, i.e., a person other than the beneficiary himself. Sending a pension payment to a beneficiary at his own address, and depositing it in his own account, does not assign that payment.”

>In this case, the court noted the warden did not acquire a right in the pension payments, nor was the warden was a receiver, since the warden did not fulfill a receiver’s requirements of managing, controlling, or preserving the funds. However, even if the warden were a receiver, he did not acquire a property interest, in that he would have no greater interest than the court itself. Under the court’s order, the warden was only required to deposit Abbott’s pension fund checks in Abbott’s account.

>After deciding that requiring pension funds to be sent to Abbott’s prison address and deposited in his account did not violate ERISA, the court went on to hold that once the pension funds were in the account they were no longer protected by ERISA.

The case is State Treasurer v. Abbott, Mich., No. 120803, 4/14/03.