Is Your ERISA Plan Safe

By Ryan Fowler, Consultant - Email Editor

Date : 22-March-2007

Dear Subscriber:

O.J. succeeded in murdering two people and keeping his remaining assets protected by his NFL ERISA plan. This type of result can lull us into thinking that all ERISA protected funds are safe. Unfortunately, this is not true. Ryan Fowler discovered a California case which makes this all so clear. Read and weep…. then make sure you have a solid Asset Protection Plan. (Rob)

“Contrary to popular belief, ERISA plans are not the holy grail of Asset Protection.

Although ERISA’s anti-alienation clauses provide formidable protection against private creditors, they do not protect against federal tax claims, and may not protect against other government claims, as well. This is clearly demonstrated in McIntyre v. USA (9th Cir. App. case No. 98-17192 (2000)). In this case, Jerry McIntyre’s ERISA-regulated pension was subject to a $300,000 IRS levy for taxes owed from 1983-1995. Jerry’s wife, Waltrout, claimed that because they were California residents, she owned half of Jerry’s pension under the state’s community property laws, and since the IRS could only levy against Jerry’s property, her half of the pension should remain untouched. Furthermore, she argued, ERISA’s anti-alienation provisions forbade the IRS from levying protected pensions. The court proved her wrong on both counts. It states:

“…the Internal Revenue Code expressly indicates that no other federal law shall exempt property from the IRS's authority to levy a delinquent taxpayer's property… Moreover, ERISA's anti-alienation clause cannot prevent the IRS from undertaking what would otherwise be a valid exercise of its levy authority … ERISA itself has a saving clause that states: "Nothing in this subchapter [which includes the anti-alienation provision] shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States." … We think it is plain that the IRS's authority to proceed against a delinquent taxpayer's interest in benefits from an ERISA-governed plan is not constrained by ERISA's anti-alienation provision.”

In regards to Mrs. McIntyre’s claim that the IRS couldn’t levy on her half of the pension fund, the court noted:

“[California] Family Code S 910 … establishes that:

‘the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.’”

As if things weren’t scary enough, the court also said:

“ERISA's anti-alienation provision plainly does not preempt the operation of California law insofar as it vests in the husband a continuing property interest in his own pension benefits...”

Yes, you read correctly. In some instances, state law can actually pre-empt the ERISA anti-alienation provisions.

The foregoing facts lead us to deduce the following:

- ERISA plans aren’t safe against the IRS. They also aren’t safe against seizure under any other U.S. law that allows ERISA funds to be forfeit.

- Although laws vary from state to state, if you live in a community property state (especially California), then a creditor of either spouse can likely reach assets of the entire community estate.

- In certain circumstances, ERISA anti-alienation provisions may be overridden by state law.

Ryan Fowler