The US 1 st Circuit Court of Appeals, affirming an earlier decision by theUS District Court for the District of Massachusetts, found ERISA does not restrict the alienation of pension benefits that have already been distributed to plan beneficiaries. The appellate court also pointed out that four of the five courts of appeals that have taken up this issue have reached similar decisions.
“We find that the district court properly denied the motion to strike as to ERISA benefits,” said Circuit Judge Sandra Lynch, writing for the court. “ERISA’s anti-alienation provision does not apply where, as here, the funds have already been disbursed to the plan beneficiary.”
Jennifer Hoult was awarded a $500,000 verdict in 1993 against her father,David Hoult, for sexually abusing her throughout her childhood. The 1st Circuit affirmed that verdict in 1995, yet David did not pay the judgment in full.
In an effort to collect the unpaid balance, Jennifer filed suit against her father in the Massachusetts District Court, the same district court that awarded her the $500,000 judgment. In May 2002, the district court found that David had fraudulently conveyed over $130,000 in assets to avoid paying the judgment. Two weeks later, the court entered an order requiring him to deposit all his income in a designated bank account and to limit his withdrawals from that account to $2,900 per month, a sum meant to cover his reasonable living expenses.
David then filed a motion to protect the$4,800 in monthly pension benefits that he receives, arguing that ERISA prohibited the alienation of those benefits. The district court denied the motion. David appealed the decision.
The court read ERISA Section 206(b)(1) to cover only funds held in the ERISA governed account, and not prohibiting creditors from staking a claim on pension benefits once they were no longer controlled by the administrator. Had Congress intended pension distributions to be inaccessible, the court said, it could easily have employed the type of language found, for example, in the Veterans Benefits Act, which prohibits attachment of benefits “either before or after receipt by the beneficiary.”
“The regulations promulgated by the Secretary of Treasury further reinforce our interpretation. Once benefits are distributed to the beneficiary, a creditor’s rights are enforceable against the beneficiary, not against the plan itself; accordingly, under the regulations, [ERISA Sec. 206(d)(1)] does not apply,” the court said. “The Treasury Secretary’s interpretation is a reasonable one, and we decline to disturb it. We find that the district court properly denied the motion to strike as to ERISA benefits.”
The case is Hoult v. Hoult .
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