ERISA-Fifth Circuit Rules That Federal Law Allows United States To Garnish Employee’s Contributions To/Benefits Under A State Pension Fund, Despite The Code’s Antialienation Rule

In U.S. v. CAY, No. 09-30218 (5th Cir. 2010), Kerry DeCay, Stanford Barre, and the Louisiana Sheriffs Pension and Relief Fund (“LSPRF”) had appealled the district court’s order granting the United States garnishment of DeCay’s contributions to and Barre’s monthly benefits from state pension funds held by the LSPRF. The Fifth Circuit held that the United States may garnish DeCay’s and Barre’s retirement benefits to satisfy a criminal restitution order, but that the United States is limited to garnishing twenty-five percent of Barre’s monthly pension benefit.

Kerry DeCay and Stanford Barre had pled guilty to one count each of mail fraud, conspiracy to commit mail fraud, and obstruction of justice for their roles in a scheme to defraud the City of New Orleans (“the City”). At sentencing, the district court determined that the City had suffered an injury compensable under the Mandatory Victims Restitution Act (“MVRA”). The MVRA makes restitution mandatory for certain crimes, including any offense committed by fraud or deceit. (18 U.S.C . § 3663A). It authorizes the United States to enforce a restitution order, notwithstanding any other federal law, against all property or rights to property of the person fined. (§ 3613(a)), with several nonapplicable exceptions.

The LSPRF had argued that the defendants’ pension benefits are exempt from garnishment because § 401(a)(13)(A) of the Internal Revenue Code (the “Code”) prohibits the assignment or alienation of retirement benefits. Section 401(a)(13)(A) states that a trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated (Section 206(d) of ERISA has the same provision). However, based on the “notwithstanding any other federal law” language in § 3613(a) of the MVRA , and several other factors, the Court ruled that the MVRA overrides § 401(a)(13) of the Code (and, implicitly, if it applied to the plan in question, Section 206(d) of ERISA). Similarly, arguments that the Tenth Amendment and state law prevented the garnishment failed. However, due to certain provisions of the Consumer Credit Protection Act and the MVRA, in Barre’s case, the garnishment is limited to 25% of his monthly benefit.

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