Court Rules that Participant's ERISA Rights Supersede State Prison's Order

June 2, 2006 ( - The 6th US Circuit Court of Appeals found that Michigan prisoners' rights as participants in pension plans were violated by orders of the state prison and department of corrections to forward the prisoners' pension payments directly to the prison without the prisoners' consent.

The court affirmed the ruling of the US District Court for the Eastern District of Michigan at Detroit.

The Michigan State Correctional Facility Reimbursement Act (SCFRA), with other Michigan laws and orders from the Michigan Department of Corrections (MDOC), required officials to forward the pensions to the prison, according to the court’s  opinion.

DaimlerChrysler Corp., the fiduciary of its pension plan, filed a declaratory action against SCFRA and MDOC because the orders required the company to send the payments to an address not designated by the plan participants in cases where prisoners refused to voluntarily have their pensions sent to the prison.

According to the orders, the state could receive up to 90% of the payments to pay for the prisoners’ expenses.

Four Michigan prisoners have pension plans with the DaimlerChrysler Corporation-UAW Pension Agreement, according to the court’s opinion.

The state treasurer filed actions against the prisoners to make them write letters to DaimlerChrysler to change their individual addresses to the prison’s address. Three of the prisoners refused to comply with court orders, and the state’s attorney general sent letters to DaimlerChrysler informing the company that it must begin sending the pension payments to the prison.

The court maintained that the orders violated the federal Employee Retirement Income Security Act’s (ERISA) anti-alienation provision that every pension plan must include an exclusion that does not allow assigning or alienating plan benefits. According to the court’s opinion, ERISA mandates that “[a]ny attempt to alienate, sell, transfer, assign, pledge, or otherwise encumber [benefits payable under the Pension Plan], whether presently or thereafter payable, shall be void.”