# Amicus Curiae Brief — Patterson v. Shumate

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1992
- **Citation:** 504 U.S. 753

## Text

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5 | Supreme Court, C.
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No. 91-913 APR 6 1997

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aw ati

OFFICE Mr

In the Supreme Court of the United Stuten

OCTOBER TERM, 1991

JOHN R. PATTERSON, TRUSTEE, PETITIONER
Vv.

JOSEPH B. SHUMATE, JR.

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

BRIEF FOR THE
UNITED STATES AS AMICUS CURIAE
SUPPORTING RESPONDENT

KENNETH W. STARR
Solicitor General

JAMES A. BRUTON
Acting Assistant Attorney General

MAUREEN E. MAHONEY
Deputy Solicitor General

CHRISTOPHER J. WRIGHT
Assistant to the Solicitor General

GARY D. GRAY

BRIDGET M. ROWAN
Attorneys
Department of Justice
Washington, D.C. 205380
(202) 514-2217

me ...... ———

QUESTION PRESENTED

Whether the anti-alienation provision of the Employee
Retirement Income Security Act, which shields pension
plans from claims of creditors, is enforceable in a bank-
ruptey proceeding.

(1)

TABLE OF CONTENTS

Page
Interest of the United Stats 1
Statutory and regulatory provisions involve 2
r 3 2
Summary of argument 6
Argument:
The terms of ERISA and the federal Bankruptcy
Code shield respondent’s pension benefits from
A 9
A. ERISA’s anti-alienation rule is an enforceable
restriction on the transfer of pension benefits
and does not make any exception for bankruptcy
ES Ee 10
B. The Bankruptcy Code gives effect to the anti-
alienation provisions of ERISA _..................... 14
C. Excluding respondent’s pension benefits —
his bankruptey estate harmonizes ERISA and
e 25
EEE EE a 28
, § ‚‚‚ͥ 2233333 ————————— 1a
TABLE OF AUTHORITIES
Cases:
Ahead By a Length, Inc., In re, 100 B.R. 157
Rs MD sss cscsncecsstnccenssorensnocsesonase 15
Anderson v. Raine (In re Moore), 907 F.2d 1476
a 5, 11, 15, 26
Burlington Northern R.R. v. Oklahoma Taz
Comm'n, 481 U.S. 484 (1987707
Connecticut Nat’l Bank v. Germain, No. 90-1791
e .... 14, 16, 23
Connolly v. Pension Benefit Guaranty Corp., 475
U.S. 211 (19865 1 12
Creasy v. Coleman Furniture — 763 F. 2d 656
(4th Cir. 1985) 1 3

(111)

Vv

IV . P
1 * Cases—Continued : age
Morton v. Mancari, 417 U.S. 585 (1974) 25
Daniel V. Security Pacific Nat’! Bank, 771 F.2d Motor Carrier Audit & Collection Co. v. Lighting
— — 1985), cert. denied, 475 U.S. : Products, Inc., 118 B.R. 424 (N. D. Ill. 1989) 15
. Pension ranty Corp.,
Danning v. Lederer, 282 F.2d 610 (7th Cir. 1956). 17 “hee oe
Dewsnup v. Timm, 112 S. Ct. 778 (1992) 23 Pension Benefit Guaranty Corp. v. R.A. Gray &
Eagle-Picher Industries, Inc. v. United States, 937 Co., 467 U.S. 717 e 12
F.2d 625 (D.C. Cir. 1991) 15 Regan v. Ross, 691 F.2d 81 (2d Cir. 1982) 9, 18
* 2 . Lewis, 477 F. Supp. 1256 (8. P. N. v. va Rubin v. United States, 449 U.S. 424 (1981) 14
— — Graha Cir.
Forbes v. Lucas, 924 F.2d 597 (6th Cir.), cert. 3 1 9, 16, 24
Gented, 111 8. Ct. $875 (1981) . Se Smith v. Mirman, 749 F.2d 181 (4th Cir. 1984) — 11
Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 Tatge v. Cheaver (In re Cheaver), 121 B.R. 665,
outed sean eee erguaeeeaeeraeee = (Bankr. P. D. C. 1990) 20
General Motors Corp. v. Buha, 623 F.2d 455 (6th Taylor v. Tayrien, 51 F.2d 894 (10th Cir.), cert.
Our. 1060) anne evnrneneenrnenrnrnenenentneneren 12 denied, 284 U.S. 672 (1931) 8 s
Gladwell . Harline, 950 F.2d 669 (10th Cir. Tenneco, Inc. v. First Virginia Bank, 698 F.2d 688
1951 e 9, 26 (4th Cir. 1983) »
%., Taylor, 706 F.2d 574 (5th Cir. 1988) ..... * The Stanley Hotel, Inc., In re, 13 B. R. 926 (Bankr.
Guidry v. Sheet Metal Workers Nat’l Pensi ei oe 15
Fund, 493 U.S. 365 (1990) 6, 7, 11, 12, 18, 14, 27 Toibb v. Radloff, 111 S. Ct. 2197 (1991)
a v. Dyke, 943 F.2d 1485 (6th Cir. * Turpin v. Wente, 644 F. 2d 472 (5th Cir. 1981) 18
— —— 8 5 3,28
John Hancock Mutual Life Insurance Co. v. reer
Watson (In re Kincaid), 917 F.2d 1162 (9th Statutes and regulations:
Cir. 19900) — 26 12
Jones v. Harrison, 7 F.2d 461 (8th Cir. 1925). aT — eee
cert. denied, 270 U.S. 652 (1926) 17 ' 1
Judson v. Witlin, 640 F. 2d 661 (5th Cir. 1981) 18 11 U.S.C, 108 d. —
Komet, In re, 104 B.R. 799 (Bankr. W. D. Tex. — — —— 1 —
—— a iodo Banal 25 S.C. 109 (l —..—ijꝗ᷑—
Lichstrahl v. Bankers Trust, 750 F.2d 1488 (11th 11 U.S.C. 110(a) (1976) ———— *
—Tſ— ( 5, 9, 24 Ch. 3:
Mackey v. Lanier Collection Agency & Service, Te ee 15
Inc., 486 U.S. 825 (1988) 13 Ch. 5:
Mason v. Eastman Kodak Co. (In re Parker), uus 4, 6, 19, 24, 25, la
473 F. Supp. 746 (W. D. N. V. 19790 18 11 U.S.C. 522 (b) — 15, 19, 24, 1a
McLean v. Central States, Southeast & Southwest . 15, 19
Areas Pension Fund, 762 F.2d 1204 (4th Cir. 11 U.S.C. 522(b) (2) (A) ... 4, 19, 24, la
55——.———ꝛ——v 11 11 U.S.C. 522 (b) (2) ( 16
Morrison-Knudsen Construction Co. v. Director, 11 U.S.C. 522 ( d)) 4, 8, 19, 20, la

VI

Statutes and regulations—Continued : Page

11 U.S.C. 522 (d) (10) (E) 19, 21, 22, 28, 24, 1a

11 U.S.C. 522 (d) (10) (E) (iii) 7, 18, 21, 2a

11 U.S.C. 523 (a) (5) 15

ee 19

11 U.S.C. 541 (a) (1) 3, 24
S 27

11 U.S.C. 541 (e) (2 passim
. ⁵ le ll eee ae 3, 24

Ch. 9:

ee 15

8 Se ee 3
Aren. 15

11 U.S.C. 1145 (a) . 15
96% L 24
11 U.S.C. 1225 (vo) se 24

=} ee 1 1 24
13 USC. 198606) 24

Employee Retirement Income Security Act of 1974:

re 10
29 U.S.C. 1002 (33) 10
29 U.S.C. 1008(b) (i777 7,10, 21, 3a
29 U.S.C. 1003 (b) (27 10, 3a
. a 10
29 U.S.C. 105 1 (6) a Oe 20, 3a
29 U.S.C. 1056 (d) (1) (8 206 (d) (1) 2, 6, 9, 10,
17, 25, 3a

29 U.S.C. 1056 (d) (3) 13, 4a
e 14
29 U.S.C. 1104 (a) (1) D)) 11
29 U.S.C. 1182 (a) (377 6, 11, 14
29 U.S.C. 1132 (a) (6) 2, 6, 11, 14
r enn 26

Internal Revenue Code (26 U.S.C.) :

nn. 14. 20, 21
Rh A ia 2 «I 2, 10, 17, 2a

VII
Statutes and regulations —Continued: Page
8 403 = 21
. 20
8 409 1 4 20
. 21
8410 (e) (1) (83) ** a ee 21
LE EE NS 21
§ 411(e) (1) (B) 7 1 21
8415 (e) (1) 1 27
Z ad 10

Labor-Management Reporting and Disclosure Ac
of 1959, 29 U.S.C. 401 et seq.:

29 U.S.C. 51 18
e Ee 14

Longshore and Harbor Workers’ Compensation
Act, 38 U.S.C. 9168 25

Retirement Equity Act of 1904, Pub. L. No. 98-
a 17

§ 204(a), 98 Stat. 144 17

28 U.S.C. 158 (d) I 23

28 U.S.C. 1291 1 23

43 U.S.C. 175 (1976) 24

Va. Code Ann. (Michie 1986) :

11 19
r 4
26 C. F. R.:
eee ele 1-2
Section 1.401 (a) -13 (a) z 8, 10, 21, 4a
Section 1.401 (a) -13 (b)))ʒ)) 1-2
Section 1.401 (a) -13 (b) (i) 10, 4a
Section 1.401 (a)-13(b) (2 11
Miscellaneous:

Arnopol, Including Retirement Benefits in a
Debtor’s Bankruptcy Estate: A Proposal for
Harmonizing ERISA and the Bankruptcy Code,

56 Mo. L. Rev. 491 (19917) 20

3 Collier on Bankruptcy (15th ed. 1991) 19

4A Collier on Bankruptcy (14th ed. 1978) 17

130 Cong. Rec. 22,126-22,127 (1984) 17

H.R. Rep. No. 595, 95th Cong., 2d Sess. (1977) 16, 18, 24

VIII
Miscellaneous—Continued : Page

Hearings on S. 235 and 286 Before the Subcomm.
on Improvements in Judicial Machinery of the
Senate Comm. on the Judiciary, 94th Cong., 1st
Sess. (1975) ............... 8 22
Report of the Commission of the Bankruptcy Laws
of the United States, H.R. Doc. No. 187, 93d

Cong., Ist Sess. (1978) .2n22.......-.-cececececececeeesereneeee 18
— . 18
— 18

S. Rep. No. 989, 95th Cong., 2d Sess. (1978) 16, 18, 24
S. 1985, 102d Cong., 2d Sess. (1992) 27

Seiden, Chapter 7 Cases: Do ERISA and the
Bankruptcy Code Conflict as to Whether a
Debtor’s Interest in or Rights Under a Qualified
Plan Can be Used to Pay Claims?, 61 Am.
Bankr. L.J. 301 (1987) : 20

In the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-913
JOHN R. PATTERSON, TRUSTEE, PETITIONER
V.
JOSEPH B. SHUMATE, JR.

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

BRIEF FOR THE
UNITED STATES AS AMICUS CURIAE
SUPPORTING RESPONDENT

INTEREST OF THE UNITED STATES

Petitioner, the trustee of respondent’s bankruptcy
estate, seeks to include respondent’s pension in the estate
and distribute it to respondent’s creditors. As mandated
by ERISA, respondent’s pension plan contains a provision
prohibiting the assignment or alienation of pension bene-
fits. Thus, the issue is whether ERISA’s anti-alienation
requirement is to be given force in determining what is
included in a bankruptcy estate.

The Department of the Treasury and the Department
of Labor have substantial authority for the enforcement
of the terms of ERISA. The Secretary of the Treasury
is charged with interpreting and administering ERISA’s
anti-alienation provision and has promulgated a regu-
lation construing the anti-alienation requirement. 26

(1)

2

C. F. R. 1.401(a)-13. The Treasury, through the Internal
Revenue Service, also is responsible for monitoring the
tax-qualified status of pension plans, which may be
affected by the assignment of plan benefits to bank-
ruptcy trustees. In addition, the Secretary of Labor has
authority to bring civil actions to ensure that fiduciaries
of pension plans that are subject to ERISA comply with
the terms of the Act, including the prohibition on
alienation or assignment of plan benefits. 29 U.S.C.
1132 (a) (5). The interpretation of ERISA's anti-
alienation requirement therefore implicates basic ERISA
policies that affect the agencies’ enforcement of the Act.

STATUTORY AND REGULATORY
PROVISIONS INVOLVED

The pertinent provisions of ERISA, the Bankruptcy
Code, and the Internal Revenue Code, along with the
IRS’s anti-alienation regulation, are reprinted in the
appendix to this brief.

STATEMENT

1. Coleman Furniture Corporation established a Pen-
sion Plan that satisfied all applicable requirements of the
Employee Retirement Income Security Act of 1974
(ERISA) and qualified for favorable tax treatment un-
der the Internal Revenue Code. In particular, the Pension
Plan complied with Section 206(d)(1) of ERISA, 29
U.S.C. 1056 (d) (1), which states that “[e]ach pension
plan shall provide that benefits provided under the plan
may not be assigned or alienated.“ Respondent Joseph
B. Shumate, Jr., was associated with Coleman Furniture
for more than 30 years. J.A. 14. After 1977, Shumate

1 The Internal Revenue Code similarly provides as a general rule
that [a] trust shall not constitute a qualified trust under this sec-
tion unless the plan of which such trust is a part provides that
benefits under the plan may not be assigned or alienated.” 26 U.S.C.
401 (a) (13).

3

controlled 96% of Coleman Furniture's stock and, from
1979 until early 1983, he served as president and chair-
man of the board of directors. J. A. 119-124. As an em-
ployee of Coleman Furniture, Shumate participated in
the Pension Plan and his interest in the Plan has been
valued at $250,000. J.A. 92-94.

Coleman Furniture experienced financial difficulties
and, in November of 1982, the corporation filed a peti-
tion for relief under Chapter 11 of the Bankruptcy Code.
The case soon was converted to a Chapter 7 proceeding
and a trustee, Roy V. Creasy, was appointed. J.A. 13.
Shumate then filed a Chapter 11 petition in his individual
capacity in June of 1984, and his case also was converted
to a Chapter 7 proceeding. Petitioner John R. Patterson
was appointed as the trustee presiding over Shumate’s
personal bankruptcy. J.A. 18.

The trustee for the Coleman Furniture bankruptcy
initiated an action in district court in which he sought
and ultimately obtained approval to terminate the Pen-
sion Plan. See Creasy v. Coleman Furniture Corp., 763
F.2d 656 (4th Cir. 1985). The trustee then proceeded
to terminate and liquidate the Pension Plan, a process that
was completed, for the most part, by the end of 1987.
J.A. 8, 26-27. As a result, approximately 400 partici-
pants in the Pension Plan, except Shumate, received full
termination distributions from Coleman Furniture’s bank-
ruptey estate. Pet. App. 4a.

In April of 1987, petitioner, the trustee in Shumate’s
case, filed an action—referred to as a turnover action—
to recover Shumate’s pension benefits for his personal
bankruptcy estate. J. A. 18-19.“ The turnover proceeding
was subsequently consolidated with a pre-existing action

2 Because the scope of the bankruptcy estate is determined as of
the time a bankruptcy petition is filed, 11 U.S.C. 541 (a) (1), and
the Pension Plan was not terminated until after Shumate filed his
bankruptcy petition, whether Shumate’s pension benefits are in-
cluded in the bankruptcy estate is unaffected by the Plan’s termi-
nation.

4

that Shumate had brought to compel Coleman Furniture’s
trustee to pay his interest in the Pension Plan to him.
J.A. 7-10; Pet. App. 52a-57a. Shumate argued that his
interest in the Pension Plan was excluded from his bank-
ruptey estate pursuant to 11 U.S.C. 541 (e) (2), which
excludes property that is subject to transfer restrictions
that are enforceable under “applicable nonbankruptcy
law.” The applicable nonbankruptey law” on which
Shumate relied was ERISA’s anti-alienation provision.

Alternatively, Shumate maintained that even if his
interest in the Plan was not excluded from the bank-
ruptey estate under Section 541 (e) (2), he was entitled
to an exemption for his pension benefits under 11 U.S.C.
522(b) (2) (A), which provides for the exemption of “any
property that is exempt under Federal law, other than
subsection (d) of this section, or State or local law.”
Shumate again relied on ERISA’s anti-alienation provi-
sion as the basis for his argument that his pension is
“exempt under Federal law” within the meaning of Sec-
tion 522(b) (2) (A).

2. The district court held that Shumate’s interest in
the Pension Plan was included in the bankruptcy estate
under Section 541 and was not exempt under Section 522.
Pet. App. 18a-46a. With respect to whether a pension
is included in a bankruptcy estate, the court rejected
Shumate’s argument that ERISA constitutes “applicable
nonbankruptcy law” under Section 541(c)(2). It in-
stead agreed with those courts that have “interpreted the
phrase ‘nonbankruptcy law’ to mean state law.” Pet.
App. 26a. The court accordingly turned to Virginia law
and held that Shumate’s interest did not qualify for pro-
tection as a spendthrift trust under Va. Code Ann. § 55-
19 (Michie 1986) because Shumate had a controlling in-
terest in Coleman Furniture. Pet. App. 36a-38a.

The district court then proceeded to reject respond-
ent’s alternative argument that his interest in the Plan
was “exempt under Federal law” within the meaning of
Section 522(b)(2)(A). Pet. App. 41a-45a. The court

5

reasoned that “the House and Senate reports contain a
list of property that can be exempted under federal laws,”
that ERISA is “conspicuously absent” from that list, and
that the federal laws mentioned related to interests that
were “peculiarly federal in nature,” while “ERISA regu-
lates private employer pension systems.” Id. at 44a,
quoting Lichstrahl v. Bankers Trust, 750 F.2d 1488,
1491 (11th Cir. 1985). Accordingly, the court ordered
that “Shumate’s interest in the Coleman Furniture Cor-
poration Pension Plan” be paid to the trustee of Shu-
mate’s bankruptcy estate. Pet. App. 54a.

3. The court of appeals reversed. Pet. App. la-17a.
The court found that the terms of the Pension Plan in-
cluded an anti-alienation clause as required by ERISA.
The court therefore held, in accordance with its prior
decision in Anderson v. Raine (In re Moore), 907 F.2d
1476 (4th Cir. 1990), that Shumate’s interest in the
Pension Plan was excluded from his bankruptcy estate
under Section 541(c) (2) of the Bankruptcy Code. Sec-
tion 541(c) (2) honors transfer restrictions that are en-
forceable under “applicable nonbankruptcy law,” and the
court concluded that this language clearly encompasses
ERISA: “‘Applicable nonbankruptcy law’ means pre-
cisely what it says: all laws, state and federal, under
which a transfer restriction is enforceable. Nothing in
the phrase ‘applicable nonbankruptcy law’ . . . suggests
that the phrase refers exclusively to state law, much less
to state spendthrift trust law.” Pet. App. 7a-8a, quoting
907 F.2d at 1477.

The court further found that its “holding is consistent
with the clear intent of ERISA and the Bankruptcy
Code.” Pet. App. 13a. Relying on this Court’s prece-
dents, the court of appeals reasoned that “Congress passed
ERISA to guarantee that ‘if a worker has been promised
a defined pension benefit upon retirement—and if he has
fulfilled whatever conditions are required to obtain a
vested benefit—he actually will receive it.“ Ibid., quot-
ing Nachman Corp. v. Pension Benefit Guaranty Corp.,
446 U.S. 359, 375 (1980). The court of appeals also

6

relied on Guidry v. Sheet Metal Workers Nat’l Pension
Fund, 493 U.S. 365 (1990), where this Court held that
ERISA’s anti-alienation provision precluded a union from
attaching a union official’s pension benefits to recover
money the official had embezzled from the union. Pet.
App. 14a. The court therefore concluded that Shumate’s
pension account also should not be distributed among his
debtors in bankruptcy proceedings, “because § 541 man-
dates that where trusts contain enforceable restrictions
on transfer of a beneficial interest, those restrictions must
be recognized in bankruptcy and there onerate to exclude
the interest from the debtor’s estate.” Jd. at 15a. The
court of appeals accordingly did not reach the question of
whether Shumate’s plan interest was exempt under Sec-
tion 522.

SUMMARY OF ARGUMENT

There is no dispute that ERISA ordinarily forbids
the trustee of a pension plan from conveying a benefi-
ciary’s interest in the plan to any creditor, even if re-
quested to do so by the beneficiary. Petitioner neverthe-
less asks this Court to create an implied exception to this
rule against alienation, and to require involuntary con-
veyance of pension interests to bankruptcy trustees for
the purpose of discharging the claims of creditors. Noth-
ing in the statutory language of ERISA or the Bank-
ruptey Code, however, suggests that Congress intended
that debtors would forfeit the ERISA-mandated protec-
tion of their pension benefits when they declare bank-
ruptcy.

A. The literal language and purposes of ERISA com-
pel the interpretation adopted by the court of appeals in
this case. Section 206 (d) (1) of ERISA provides that
pension benefits “may not be assigned or alienated,” 29
U.S.C. 1056 (d) (1), and trustees who violate this pro-
hibition are subject to suits for damages and equitable
relief under ERISA, 29 U.S.C. 1132 (a) (3) and (5).
The statutory language makes no exception favoring cred-

7

itors in bankruptcy proceedings, and this Court has al-
ready declined to create implied exceptions to ERISA’s
anti-alienation rule. Guidry v. Sheet Metal Workers Nat'l
Pension Fund, 493 U.S. 365, 376 (1990).

The purpose of ERISA’s prohibition on voluntary and
involuntary alienation—conserving plan benefits for the
beneficiary’s retirement—is also fully implicated in the
context of bankruptcy proceedings. If the debtor’s pen-
sion benefits are used to discharge claims of creditors in
bankruptcy, they simply will not be available for retire-
ment, and that is the very result Congress sought to
avoid.

B. The Bankruptey Code also provides, consistent with
ERISA, that a debtor’s beneficial interest in a trust is
excluded from the bankruptcy estate whenever “appli-
cable nonbankruptcy law“ would otherwise prevent the
transfer of that interest. 11 U.S.C. 541 (e) (2). The court
of appeals correctly held in this case that there is simply
no way to read the phrase “applicable nonbankruptcy
law” to exclude ERISA’s restriction against alienation,
or to refer only to “state spendthrift trust law,” as peti-
tioner contends. See Pet. App. 15a-16a.

Petitioner’s reliance on the legislative history and the
language of the exemption section of the Bankruptcy
Code for such a restrictive interpretation is misplaced.
The legislative history in fact demonstrates a congres-
sional intent to recodify the rule adopted under the prior
Bankruptey Act, which enforced restrictions on aliena-
tion that were recognized under either state or federal
law.

Similarly, the fact that one section establishing an
exemption for property otherwise included in the estate,
11 U.S.C. 522(d) (10) (E) (iii), makes reference to qual-
ified ERISA pension plans, is also fully consistent with
our interpretation of the Bankruptcy Code. Certain cate-
gories of tax-qualified pension plans, those established by
governmental entities and churches, are not required to in-
corporate anti-alienation clauses. 29 U.S.C. 1003 (b) (1);

8

26 C.F.R. 1.401(a)-18(a). Such plans accordingly would
not be excluded from the bankruptcy estate under “ap-
plicable nonbankruptcy laws” within the meaning of Sec-
tion 541(c)(2). The exemption set forth in Section
522(d) therefore serves to enlarge the protections af-
forded to such plans, thereby demonstrating that the
section is not partially superfluous.

C. The court of appeals’ interpretation reconciles co-
ordinate federal statutes without undermining the pur-
poses of either law. Adoption of petitioner’s restrictive
reading, in contrast, would defeat ERISA’s command
that claims of creditors must always be subordinated to
the debtor’s need for pension benefits at the time of
retirement. It would also defeat congressional intent
to establish a uniform federal rule governing the aliena-
tion of ERISA plan benefits, since protection of those
benefits would depend upon whether state law happened
to make the anti-alienation provision enforceable. In the
end, petitioner would have this Court conclude that Con-
gress sought to give pension benefits held in an ERISA
qualified trust less protection than pension benefits held
in a state spendthrift trust. There is no reason whatso-
ever to adopt such a strained interpretation of the law.

9
ARGUMENT

THE TERMS OF ERISA AND THE FEDERAL BANK-
RUPTCY CODE SHIELD RESPONDENT’S PENSION
BENEFITS FROM BANKRUPTCY CREDITORS

The dispositive question in this case is whether ER!SA’s
prohibition against the assignment or alienation of pen-
sion benefits, 29 U.S.C. 1056 (d) (1), must be honored
in bankruptey proceedings. The Bankruptcy Code pro-
vides that a] restriction on the transfer of a beneficial
interest of the debtor in a trust that is enforceable under
applicable nonbankruptcy law is enforceable in a case
under this title,” 11 U.S.C. 541(c) (2), and the court of
appeals concluded that ERISA is “applicable nonbank-
ruptey law.“ It accordingly held that respondent’s pen-
sion benefits are excluded from his bankruptcy estate.
Accord Velis v. Kardanis, 949 F.2d 78 (3d Cir. 1991);
Forbes v. Lucas, 924 F.2d 597 (6th Cir.), cert. denied,
111 S. Ct. 2275 (1991); Gladwell v. Harline, 950 F.2d
669 (10th Cir. 1991).

Petitioner, the trustee of respondent’s bankruptcy
estate, urges this Court to reject the court of ap-
peals’ straightforward interpretation of ERISA and the
Bankruptcy Code, and to instead read the phrase “appli-
cable nonbankruptcy law“ to refer solely to state spend-
thrift trust law. Br. 49. That interpretation was first
advanced in Goff v. Taylor, 706 F.2d 574 (5th Cir. 1983).
Accord Samore v. Graham, 726 F.2d 1268 (8th Cir.
1984), Daniel v. Security Pacific National Bank, 771 F.2d
1352 (9th Cir. 1985), cert. denied, 475 U.S. 1016 (1986),
and Lichstrahl v. Bankers Trust, 750 F.2d 1488 (11th
Cir. 1985). See also Regan v. Ross, 691 F.2d 81, 85 (2d
Cir. 1982). The United States agrees with the court
below that the Goff interpretation is inconsistent with the
literal language of ERISA as well as the Bankruptcy
Code, and would nullify central terms of ERISA’s scheme
to protect pension plan benefits.

10

A. ERISA’s Anti-Alienation Rule Is An Enforceable Re-
striction On The Transfer Of Pension Benefits And
Does Not Make Any Exception For Bankruptcy
Proceedings

1. The literal terms of ERISA do not permit the
trustee of a pension plan to transfer or assign plan ben-
efits to a bankruptcy trustee. A beneficiary’s interest in
a pension plan is generally subject to transfer restric-
tions by virtue of Section 206(d) (1) of ERISA, 29 U.S.C.
1056 (d) (1), which provides that el ach pension plan
shall provide that benefits provided under the plan may
not be assigned or alienated.” * The coordinate section
of the Internal Revenue Code provides as a general rule
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.” 26 U.S.C. 401 (a) (13) (ERISA
§ 1021(c)). In addition, the Treasury Department has
promulgated a regulation, 26 C.F.R. 1.401(a)-13(b) (1),
specifying that pension benefits held in trust are not
subject to various kinds of attachment by creditors.*

Section 206 (d) (1) is part of Title I of ERISA, which governs
“protection of employee benefit rights.” A number of types of em-
ployee benefit plans are excepted from coverage under Title I of
ERISA, including “governmental plan [s]“ and “church plan[s].”
29 U.S.C. 1003(b)(1) and (2); see 29 U.S.C. 1002(32) and
1002(33) (defining “governmental plan” and “church plan”). Ac-
cordingly, pension plans sponsored by government agencies and
churches are not required to include anti-alienation clauses.

The regulation states that [a] trust will not be qualified unless
the plan of which the trust is a part provides that benefits provided
under the plan may not be anticipated, assigned (either at law or
in equity), alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process.” 26 C. F. R. 1.401 (a) -
13(b) (1). In light of the statutory exclusion of governmental plans
and church plans from coverage under Title I of ERISA, the regu-
lation provides that it does not apply to such plans. Id. § 1.401 (a) -
13(a). The regulation also permits alienation to satisfy a federal
tax levy under Section 6331 of the Internal Revenue Code or a judg-

11

ERISA requires plan trustees to adhere to these anti-
alienation provisions. Under 29 U.S.C. 1104(a)(1)(D),
the plan trustee must discharge his duties “in accordance
with the documents and instruments governing the plan,“
and is subject to suit for any violation of the anti-alien-
ation rule. The Secretary of Labor, a plan participant
or beneficiary, or a plan fiduciary may bring a civil
action to enjoin any violation of the anti-alienation re-
quirement, to recover benefits due under a plan, and to
seek reimbursement for the plan from fiduciaries who
violated the requirements of the statute or the terms
of a plan by alienating benefits held in trust. See 29
U.S.C. 1132 (a) (3) and (5).

It has therefore been firmly established outside the
bankruptcy context that general creditors—even those
who have been criminally wronged by the debtor—may
not reach pension benefits properly held in trust by a
pension fund containing an anti-alienation provision man-
dated by ERISA. Guidry v. Sheet Metal Workers Nat'l
Pension Fund, 493 U.S. 365, 376 (1990). See also Smith
v. Mirman, 749 F.2d 181, 183 (4th Cir. 1984) (an em-
ployee’s accrued benefits under a qualified plan may not
be reached by judicial process in aid of a third party

ment in favor of the United States resulting from an unpaid tax
assessment. Id. § 1.401 (a) -13 (b) (2).

5In addition, the IRS has taken the position that the transfer of
a beneficiary’s interest in a pension plan to a bankruptcy trustee
would disqualify the plan from taking advantage of the preferential
tax treatment available under ERISA. See Forbes v. Lucas, 924
F.2d 597, 603 (6th Cir.), cert. denied, 111 S. Ct. 2275 (1991);
Anderson v. Raine (In re Moore), 907 F.2d 1476, 1481 (4th Cir.
1990); McLean v. Central States, Southeast & Southwest Areas
Pension Fund, 762 F.2d 1204, 1206 (4th Cir. 1985). However,
the IRS has refrained from disqualifying plans on that basis in
light of the conflict as to whether pension benefits are excluded
from the bankruptcy estate under 11 U.S.C. 541 (e) (2). The IRS
may continue to exercise its enforcement discretion in that man-
ner in circuits that have rejected the Service’s position on the ques-
tion presented in this case pending resolution of the conflict by
this Court.

12

creditor); Tenneco, Inc. v. First Virginia Bank, 698
F.2d 688, 689-690 (4th Cir. 1983) ; General Motors Corp.
v. Buha, 623 F.2d 455, 463 (6th Cir. 1980) (pension plan
benefits protected against garnishment by tort judgment
creditor). There is no reason to apply a different rule
here, because none of the provisions governing alienation
of ERISA plan benefits includes any exception that would
permit alienation in favor of a bankruptcy trustee. The
literal language of ERISA therefore serves to bar the
trustee of an ERISA plan from making the transfer
sought by the petitioner in this case.

2. The purposes of ERISA’s anti-alienation provisions
apply with full force in the context of bankruptcy.
ERISA’s restriction on alienation protects vested benefits
from both voluntary and involuntary encroachments and
ensures that an employee’s accrued pension benefits will
actually be available for retirement. As this Court has
noted on a number of occasions, Congress passed ERISA
to guarantee that “if a worker has been promised a de-
fined pension benefit upon retirement—and if he has
fulfilled whatever conditions are required to obtain a
vested benefit—he actually will receive it.” Nachman
Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359,
375 (1980). See also Pension Benefit Guaranty Corp. v.
R.A. Gray & Co., 467 U.S. 717, 720 (1984) ; Connolly v.
Pension Benefit Guaranty Corp., 475 U.S. 211, 214
(1986). This Court has also stated that ERISA’s anti-
alienation rule furthers this purpose: Section 206 (d
reflects a considered congressional policy choice, a decision
to safeguard a stream of income for pensioners (and
their dependents, who may be, and perhaps usually are,
blameless), even if that decision prevents others from
securing relief for the wrongs done them.” Guidry V.
Sheet Metal Workers Nat’l Pension Fund, 493 U.S. 365,
376 (1990).

It simply makes no difference whether the pension plan
trustee alienates pension benefits in favor of a judgment
creditor, a lien holder, or a bankruptcy trustee. The result
is the same—the benefits will not be available to the

13

employee at the time of his retirement. And that is the
result Congress sought to prevent through adoption of a
broad anti-alienation clause.

3. This Court has already refused to create implied
exceptions to ERISA’s anti-alienation rule. Instead, this
Court held in Guidry that “[i]f exceptions to this policy
are to be made, it is for Congress to undertake that task.”
Guidry, 493 U.S. at 376.“ In Guidry, this Court held
that ERISA’s anti-alienation provision shields plan bene-
fits from creditors even where the equities strongly favor
the creditor, and even where another federal statute argu-
ably provides a basis for an exception to ERISA’s anti-
alienation rule. Noting that where Congress intended
to create exceptions to ERISA’s bar against the alienation
of pension benefits it has very explicitly done so within
ERISA itself, this Court declined to create an equitable
exception to ERISA’s rule against alienation. 493 U.S.
at 376; see Mackey v. Lanier Collection Agency & Service,
Inc., 486 U.S. 825, 838 (1988).

The argument rejected by this Court in Guidry has
substantial parallels to petitioner’s argument in this case.
Guidry, a union official and a trustee of the union’s pen-
sion fund, pleaded guilty to embezzling union funds in
violation of the Labor-Management Reporting and Dis-
closure Act of 1959 (LMRDA), 29 U.S.C. 501. The union
therefore sought to impose a constructive trust on Guidry’s
pension account in order to further the remedial purposes
of the LMRDA, which provides a labor organization with

The Court noted, however, that Guidry had not been found to
have breached his fiduciary duty to the union pension plan by em-
bezzling from the union, so that the Court was not deciding whether
a fiduciary could be ordered to transfer funds from his pension
account to other pension accounts as a remedy for such a breach.
493 U.S. at 378-374.

The Court was referring to 29 U.S.C. 1056(d) (3), which pro-
vides an express exception to ERISA’s anti-alienation rule for satis-
faction of qualified domestic relations orders relating to child sup-
port and alimony.

14

a private right of action to recover damages or obtain
other appropriate relief from officials who violate the
Act. 29 U.S.C. 501 (b). This Court rejected that argu-
ment, which had been accepted by the lower court, based
upon a specific directive from Congress: pension benefits
are immune from alienation or assignment. This Court
declined to override this directive in the absence of a
clear statement from Congress. 493 U.S. at 375-376. As
in Guidry, no such clear congressional statement can be
found in this case.

B. The Bankruptcy Code Gives Effect to the Anti-
alienation Provisions of ERISA

1. Section 541(c) (2) of the Bankruptcy Code provides,
consistent with ERISA, that trust funds subject to enforce-
able transfer restrictions are not included in the bank-
ruptey estate. Section 541(c) (2) provides that [a] re-
striction on the transfer of a beneficial interest of the
debtor in a trust that is enforceable under applicable
nonbankruptcy law is enforceable in a case under this
title.” 11 U.S.C. 541 (e) (2). A pension fund that was
established in compliance with ERISA is a “trust,” see
29 U.S.C. 1103; 26 U.S.C. 401(a), and as shown previ-
ously, ERISA’s restrictions against alienation are “en-
forceable” under 29 U.S.C. 1132 (a) (3) and (5). Section
541(c) (2)’s reference to “applicable nonbankruptcy law“
is unqualified and contains no reference to state law or,
more particularly, to state spendthrift trust law. Follow-
ing this Court’s “first canon” of statutory interpretation,
a straightforward reading of the phrase “applicable non-
bankruptcy law“ necessarily encompasses federal as well
as state law. Connecticut Nat’! Bank v. Germain, No.
90-1791 (Mar. 9, 1992), quoting Rubin v. United States,
449 U.S. 424, 430 (1981).

Reading Section 541(c) (2) to encompass both federal
and state laws is also consistent with the use of the
phrase “applicable nonbankruptcy law” in other sections

15

of the Bankruptcy Code. See Morrison-Knudsen Construc-
tion Co. v. Director, OWCP, 461 U.S. 624, 633 (1983)
(recognizing the principle of statutory construction that
a word is presumed to have the same meaning in all sub-
sections of the same statute). In numerous places, unless
otherwise limited by the text, the term “applicable non-
bankruptcy law” refers to federal as well as state law.“
As the Fourth Circuit noted in Jn re Moore, it would be
“incongruous to give the same phrase in § 541(c)(2) a
narrower construction than the identical phrase in other
parts of the Bankruptcy Code, particularly since the dis-
parate sections of the Bankruptcy Code were enacted to-
gether in a single comprehensive statute.” 907 F.2d at
1478.

Conversely, other portions of the Barkruptcy Code
demonstrate that, when Congress intended to refer ex-
clusively to state law, it did so explicitly. See, e.g., 11
U.S.C. 109 (e) (2) (entity may be a debtor under Chapter
9 if authorized “by State law“); 11 U.S.C. 522 (b) (1)
(election of exemptions controlled by “State law that is
applicable to the debtor”) ; 11 U.S.C. 523 (a) (5) (a debt
for alimony, maintenance, or support determined “in
accordance with state or territorial law” is not discharge-
able); 11 U.S.C. 903 (1) (“State law prescribing a method
of composition of indebtedness” is not binding on non-
consenting creditors) ; see also 11 U.S.C. 362(b) (12); 11
U.S.C. 1145(a). Accordingly, petitioner’s contention that
the phrase “applicable nonbankruptcy law” is limited to

See, .., 11 U.S.C. 1125(d) (“otherwise applicable nonbank-
ruptey law” includes federal securities law), see In re The Stanley
Hotel, Inc., 13 B.R. 926, 931 (Bankr. D. Colo. 1981); 11 U.S.C.
108(a) (“applicable nonbankruptcy law” includes, inter alia, the
Racketeer Influenced and Corrupt Organization Act and the Inter-
state Commerce Act), see Jn re Ahead By a Length, Inc., 100 B. R.
157, 162-163 (Bankr. S. D. N. V. 1989), and Motor Carrier Audit &
Collection Co. v. Lighting Products, Inc., 113 B. R. 424, 425-426
(N. D. TIL 1989); 11 U.S.C. 108(b) (“applicable nonbankruptcy
law” includes the Federal Tort Claims Act), see Eagle-Picher In-
dustries, Inc. v. United States, 987 F.2d 625, 639-640 (D.C. Cir.
1991).

16

state spendthrift trust law is unsupported by the lan-
guage of Section 541(c)(2), which neither states nor
implies any such limitation.“

2. Petitioner, and the courts that have limited “appli-
cable nonbankruptcy law” to state spendthrift trust law,
have purported to rely on the legislative history of Section
541 (e) (2). See Br. 38-42; Goff, 706 F.2d at 581-582;
Graham, 726 F.2d at 1271-1272. As an initial matter,
resort to the legislative history is improper where the
statute is not ambiguous. Connecticut Nat’l Bank v.
Germain, No. 90-1791 (Mar. 9, 1992), slip op. 5. But
even if it were proper to advert to the legislative history,
the limited history pertaining to Section 541 (e) (2) is
more consistent with the statutory interpretation adopted
by the court of appeals in this case.

a. The House Report stated that the term “applicable
nonbankrupey law” in Section 541(c)(2) “preserves
restrictions on transfer of a spendthrift trust to the ex-
tent that the restriction is enforceable under applicable
nonbankruptcy law,” and added that Section 541(c) (2)
„continues over the exclusion from property of the estate
of the debtor’s interest in a spendthrift trust to the extent
the trust is protected from creditors under applicable
State law.” H.R. Rep. No. 595, 95th Cong., Ist Sess. 369,
176 (1977). The Senate Report similarly noted that
Section 541 (e) (2) “preserves restrictions on a transfer
of a spendthrift trust.” S. Rep. No. 989, 95th Cong., 2d
Sess. 83 (1978). Those passages indicate Congress’s in-
tent to protect spendthrift trusts, and other passages in
legislative history pertaining to ERISA reveal that Con-

o Petitioner’s observation (Br. 35) that in Bankruptcy Code
Section 522 (b) (2) (B) the phrase “applicable nonbankruptcy law“
is effectively restricted to state law does not advance his position.
The reference in Section 522 (b) (2) (B) is effectively limited to
state law because the phrase is qualified by a reference to the law
pertaining to tenancies by the entireties and there is no similar
language in Section 541(c)(2) restricting “applicable nonbankruptcy
law” to state law, much less state spendthrift trust law.

17

gress in fact has equated the ERISA anti-alienation re-
quirement with a “spendthrift” clause.’ Moreover, these
passages should not be read to limit the scope of “applica-
ble nonbankruptcy law” merely because they illustrate
congressional intent by pointing to a common example—
spendthrift trusts that are enforceable under state law.

b. The legislative history also shows that Congress
intended Section 541(c) (2) to preserve prior law with
respect to restrictions on alienability and assignment.
Prior law would have protected the pension plan interests
in issue, providing further support for the lower court’s
construction of Section 541 (e) (2).

Prior to the adoption of Section 541(c) (2), interests
protected by an enforceable anti-alienation provision were
excluded from the bankruptcy estate under Section 70a
of the Bankruptcy Act. 11 U.S.C. 110(a) (1976). See
Danning v. Lederer, 232 F.2d 610 (7th Cir. 1956) ; Jones
v. Harrison, 7 F.2d 461 (8th Cir. 1925), cert. denied,
270 U.S. 652 (1926). In addition, restrictions on alien-
ation were respected by Section 70a whether they were
enforceable under state spendthrift trust law or federal
law. 4A Collier on Bankruptcy para. 70.26, at 365-366
(14th ed. 1978). Thus, for example, the “headright” of
an Osage Indian—.e., oil and gas rights held in trust by
the United States—did not become property of the In-
dian’s bankruptcy estate because federal law imposed
restrictions on transfer and seizure of those assets. Taylor
v. Tayrien, 51 F.2d 884 (10th Cir.), cert. denied, 284
U.S. 672 (1931) .™

10 In Section 204(a) of the Retirement Equity Act of 1984, Pub.
L. No. 98-397, 98 Stat. 1426, Congress amended Internal Revenue
Code Section 401(a) (13) to exempt a “qualified domestic relations
order” from ERISA’s restrictions on alienation of benefits. 98
Stat. 1445. In the technical explanation which accompanied the
Act, the Senate Committee on Finance specifically referred to the
anti-alienation provision of Section 401 (a) (13) of the Internal
Revenue Code and to the parallel provision in Section 206(d) (1)
of ERISA as “spendthrift provisions.” 130 Cong. Rec. 22,126-
22,127 (1984).

After enactment of the current Bankruptcy Code, but in cases
decided under the former Act, a few courts also had occasion to

18

The history leading to the adoption of the current
law reveals a congressional intent to leave these rules
undisturbed. The Commission on Bankruptcy Laws, es-
tablished in 1970 to study the former Bankruptcy Act,
proposed a modification of the spendthrift trust rules
that was ultimately rejected in favor of the prior law.
The Commission recommended that restrictions on a
debtor’s beneficial trust interests that were “enforceable
under applicable nonbankruptcy law” should only be en-
forceable in bankruptcy to the extent reasonably neces-
sary for support of the debtor and his dependents. Re-
port of the Commission of the Bankruptcy Laws of the
United States, H.R. Doc. No. 137, 93d Cong., Ist Sess.
Pt. 1, at 197 (1973). Id. Pt. 2, § 4-601(b), at 147-148.
The House version of the bill that was ultimately en-
acted as the new Bankruptcy Code did not adopt this
aspect of the Commission’s recommendation. The law
adopted did not limit the exclusion of protected trust
interests to the amount necessary for support. See H.R.
Rep. No. 595, supra, at 176, 369; S. Rep. No. 989, supra,
at 83. Thus, it is clear that Bankruptcy Code Section
541 (e) (2) was intended to continue in full the protec-
tion of interests in spendthrift trusts that was available
under the prior Bankruptcy Act.

3. Petitioner and the courts that have restricted “ap-
plicable nonbankruptcy law” to state spendthrift trust
law have also relied on the misimpression that reading
Section 541 (e) (2) to mean what it says would render
one of the Bankruptcy Code’s exemption provisions, 11
U.S.C. 522 (d) (10) (E) (iii), partially superfluous. See
Br. 24-33; Goff, 706 F.2d at 582; Heitkamp v. Dyke, 943
F.2d 1435, 1442-1443 & n.20 (5th Cir. 1991); ef. Regan
v. Ross, 691 F.2d 81 (2d Cir. 1982). In fact, there is no

consider, and recognize, interests in pension plans subject to ERISA
as interests that were outside the scope of the bankruptcy estate.
See Turpin v. Wente, 644 F.2d 472 (5th Cir. 1981); Mason v. East-
man Kodak Co. (In re Parker), 473 F. Supp. 746 (W.D.N.Y. 1979).
But see Judson v. Witlin, 640 F.2d 661 (5th Cir. 1981).

19

reason to depart from the language Congress used in or-
der to avoid a conflict between the exclusion and exemp-
tion provisions, because each provision has force when
read together properly.

a. The Bankruptcy Code provides that certain prop-
erty includable in the bankruptcy estate under Section
541 may be exempted from the estate pursuant to a com-
plex set of provisions detailed in Section 522. In some
States, debtors may choose between two different lists
of exemptions: (1) the exemptions referred to as the
“laundry list,” set forth in Section 522(d); or (2) the
exemptions available under Section 522 (b). In the ma-
jority of States, including Virginia, which is respond-
ent’s residence, debtors may not elect the exemptions
set out in the laundry list under Section 522(d), but
are restricted to the exemptions allowed under Section
522(b). See 11 U.S.C. 522(b) (1); Va. Code Ann. § 34-31
(Michie 1986); 3 Collier on Bankruptcy para. 522.02
n.4a (15th ed. 1991).

Even though the laundry list of exemptions under 522(d)
is not applicable to most bankruptcies—including respond-
ent’s—petitioner claims (Br. 26) that the terms of Section
522(d) disclose an intent to make all ERISA benefits
includable in the estate. Section 522 (d) (10) (E) provides
that a debtor who chooses the laundry list of exemptions
(if allowed to do so under state law), may exempt his
right to receive “a payment under a stock bonus, pen-
sion, profitsharing, annuity, or similar plan or contract
7, to the extent reasonably necessary for the support
of the debtor and any dependent of the debtor, unless—
* * (iii) such plan or contract does not qualify under
section 401 (a), 403 (a), 403 (b), 408, or 409 of the In-
ternal Revenue Code of 1986 (26 U.S.C. 401 (a), 403 (a),
403 (b), 408, or 409).“ If interests in qualified pension
plans are excluded from the bankruptey estate under

1 Section 522 (h) (2) (A) provides for the exemption of any
property that is exempt under Federal law, other than subsection
(d) of this section, or State or local law.”

20

Section 541(c) (2), petitioner contends, there would be
no need for a reference to pension plans that qualify for
preferential tax treatment under Section 401 (a) of the
Internal Revenue Code in the Bankruptcy Code’s ex-
emption provision. See Br. 29-31.

It should be noted at the outset that plans that qualify
for preferential tax treatment under Section 408—in-
dividual retirement accounts (IRAs)—are not required to
contain anti-alienation provisions.“ An IRA therefore
would not be protected from alienation under “applicable
nonbankruptcy law,” but the exemption in Section 522(d)
would nevertheless serve to enlarge the protection afforded
to the IRA assets when the debtor declares bankruptcy.
It would be counter-intuitive to read Section 522(d),
which provides increased protection for plans that are not
required to contain an anti-alienation clause, to reduce
the protection afforded to the plans that Congress re-
quired to be protected from assignment or alienation.

Moreover, even the Section’s reference to pension plans
that qualify under Section 401(a) does not render the
section partially superfluous. Not all pension plans that
qualify for favorable tax treatment under Section 401 (a)
contain an anti-alienation provision, and the exemption
of 522(d) would therefore serve to enlarge the protection
afforded those plans as well. See Tatge v. Cheaver (In re
Cheaver), 121 B.R. 665, 665-666 (Bankr. D.D.C. 1990) ;
Seiden, Chapter 7 Cases: Do ERISA and the Bankruptcy
Code Conflict as to Whether a Debtor’s Interest in or
Rights Under a Qualified Plan Can be Used to Pay
Claims?, 61 Am. Bankr. L.J. 301, 317-318 (1987); Ar-
nopol, Including Retirement Benefits in a Debtor’s Bank-
ruptey Estate: A Proposal for Harmonizing ERISA and
the Bankruptcy Code, 56 Mo. L. Rev. 491, 552-553 (1991).
As noted previously (see notes 3, 4, supra), two sig-

18 Pension plans that qualify for preferential tax treatment under
26 U.S.C. 408 (individual retirement accounts) and 409 (which
covered retirement bonds at the time the Bankruptcy Code was en-
acted) are specifically excepted from ERISA’s anti-alienation re-
quirement by 29 U.S.C. 1051(6).

21

nificant categories of pension plans, those established by
governmental entities and churches, may qualify for
preferential tax treatment without complying with
ERISA’s anti-alienation requirement. See 29 U.S.C.
1003 (b) (1) and (2); 26 C. F. R. 1.401 (a)-13 (a).“ In
short, since these pension plans qualify for favorable tax
treatment under Section 401 (a) of the Internal Revenue
Code but are not protected against alienation under “ap-
plicable nonbankruptcy law,” the court of appeals’ inter-
pretation of Section 541 (e) (2) does not partially nullify
Section 522(d) (10) (e) (iii). Rather, under the court of
appeals’ construction of the statute, Section 522 (d) (10
(e) (iii) increases the protections afforded to participants
in governmental plans and church plans.

b. Unlike petitioner, amicus David B. Tatge, Trustee,
recognizes that some types of ERISA pension plans
are not required to include anti-alienation clauses.
He nevertheless contends that the court of appeals’ in-
terpretation is contrary to various shreds of legislative
history bearing on Congress’s intent in enacting Section
522 (d) (10) (E).

Amieus relies primarily on a note explaining the ex-
emption provision in the proposal of the Commission on
the Bankruptcy Laws. Br. 10-11, quoting Note 8 to

14 Because the provisions of Subchapter I of ERISA do not apply
to governmental! plans and church plans, they are treated differently
from plans established by private companies in a number of respects.
For example, in addition to not being subject to the anti-alienation
rule, governmental plans and church plans are not required to com-
ply with ERISA’s reporting and disclosure requirements or the
statute’s vesting and participation requirements. Governmental
plans and church plans are excepted from these requirements whether
they establish a trust fund or purchase annuity contracts, as pro-
vided in 26 U.S.C. 408. See 26 U.S.C. 410(c) (1) (A) and (B), 411
(e) (1) (A) and (B); see also Feinstein v. Lewis, 477 F. Supp.
1256, 1261 (S.D.N.Y. 1979) (“[p]lans established by state and
local governments are generally excluded from coverage under
ERISA because of concerns of federalism“).

22

§ 4-503 of the Commission Report. That note supports
the view that the drafter thought that interests in qual-
ified plans sponsored by private companies would be par-
tially exempted from the bankruptcy estate. Putting
aside the question whether it would be proper to rewrite
Section 541(c) (2) based upon the explanatory note to
a Commission proposal, there is no reason to impute
the drafter’s intention to Congress because Congress in
fact revised the Commission’s proposal in material
ts.“

ae also notes that a witness at a hearing on the
Commission’s proposal stated that the Commission’s bill
allowed a partial exemption for pension benefits, whereas
ERISA precluded any alienation of pension benefits. Br.
12, quoting Hearings on S. 235 and 236 Before the Sub-
comm. on Improvements in Judicial Machinery of the
Senate Comm. on the Judiciary, 94th Cong., Ist Sess.
664, 678 (1975) (statement of John Creedon of the
American Life Insurance Association). Perhaps that tes-
timony prompted Congress to resolve the conflict be-
tween the Commission’s proposal and ERISA by excluding
pension benefits subject to a mandatory anti-alienation
clause altogether. In any event, as enacted, Section
541(c) (2) and Section 522 (d) (10) (E) are fully com-
patible with each other and with ERISA’s anti-alienation
provision. U

c. The court of appeals properly rejected petitioner's
argument even though it may not have appreciated that
Section 541(c) (2) and Section 522(d) (10) (E) are fully

15 The Commission proposed in § 4-601 (b) to exclude interests
of the debtor “in a trust created for his support.” A pension trust,
which might have been created before a participant was employed
by the sponsoring company, would not normally have been created
for the debtor’s support. Therefore, under the Commission’s pro-
posal, pension benefits would have been subject to partial exemption
but not exclusion. However, Congress deleted “created for his sup-
port” from the Commission’s proposal and broadly excluded property
held “in a trust” in Section 541(c) (2), so the law actually adopted
does exclude pension benefits.

|
„
‘
:

23

compatible. The Bankruptcy Code is not a model of
precise draftsmanship, Dewsnup v. Timm, 112 S. Ct.
773, 778 (1992), and the Code’s exemption provision is
particularly complex. In a recent decision, this Court
refused to depart from the clear language of 28 U.S.C.
158 (d), which governs appellate jurisdiction in bank-
ruptey cases, based upon an overlap between Section
158(d) and 28 U.S.C. 1291, which governs appellate
jurisdiction generally. Connecticut Nat’! Bank v. Ger-
main, No. 90-1791 (Mar. 9, 1992).

In reasoning applicable to this case, the Court said
that because giving effect to both §§ 1291 and 158 (d
would not render one or the other wholly superfluous,
we do not have to read § 158(d) as precluding courts of
appeals, by negative implication, from exercising jurisdic-
tion under § 1291 over district courts sitting in bankruptcy.”
Connecticut Nat’l Bank, slip op. 4-5. Under no reading
of the Bankruptcy Code is either Section 541(c) (2) or
Section 522(d)(10)(E) rendered wholly superfluous,
since there is no dispute that Section 522 (d) (10) (E ex-
empts interests in pension plans that do not qualify for
preferential tax treatment in some circumstances. Accord-
ingly, even a partial overlap between Section 541(c) (2)
and Section 522‘d) (10) (E) would not provide an adequate
basis to read “applicable nonbankruptcy law“ to mean
“state spendthrift trust law.” But as we have explained,
Section 541 (e) (2) and Section 522 (d) (10) (E) are never-
theless entirely compatible.“

1% In this connection, we note that the Third Circuit did not
adequately harmonize Section 541 (c) (2) and Section 522(d) (10) (E)
by reading the latter provision as relating only to distributions from
a pension plan that the debtor has an immediate and present right
to receive. See Velis v. Kardanis, 949 F.2d at 81-82. Even assuming
that Section 522 (d) (10) (E) can be read to protect distributions
only, such a reading does not resolve the present issue. In our view,
Section 541(c) (2) excludes from the bankruptcy estate the debtor’s
interest in a plan containing an anti-alienation clause mandated by
ERISA; once the interest in the plan is excluded, distributions

24

4. If this Court agrees that respondent’s pension ben-
efits are excluded from his bankruptcy estate because the
Pension Plan was subject to ERISA’s anti-alienation rule,
there is no need to consider whether those benefits are
exempt under Section 522(b) (2) (A), which provides an
exemption for “property that is exempt under Federal
law, other than subsection (d) of this section.” But it
is instructive that the district court’s conclusion that
interests in pension plans are not “exempt under Fed-
eral law” rested on the fact that ERISA was not men-
tioned in the legislative history of Section 522(b). Pet.
App. 44a; see S. Rep. No. 989, 95th Cong., 2d Sess. 75
(1978), H.R. Rep. No. 595, 95th Cong., Ist Sess. 360
(1977); see also Lichstrahl, 750 F.2d at 1491; Graham,
726 F.2d at 1274.7 If we are correct that interests in

under the plan are excluded as well and constitute part of the
debtor’s “fresh start” because, with a few exceptions not applicable
in this Chapter 7 case, only interests of the debtor in property as
of “the commencement of the case” go into the bankruptcy estate.
11 U.S.C. 541(a)(1). Thus, since respondent’s interest in the Pen-
sion Plan is not included in his estate under Section 541 (e) (2),
there is no need to exempt distributions under the Plan that occurred
after the filing of his bankruptcy petition.

Even in Chapters 12 and 13, where property of the estate includes
property received by the debtor during the pendency of the case,
Section 522(d)(10)(E) would not be necessary to protect distribu-
tions. Debtors in Chapters 12 and 13 are required only to commit
their “disposable income,” ie, amounts in excess of that which is
“reasonably necessary * * * for the maintenance or support of the
debtor or a dependent of the debtor,” 11 U.S.C. 1225(b), 1325(b),
and Section 522(d)(10)(E) by its terms provides an exemption
only “to the extent reasonably necessary for the support of the
debtor and any dependent of the debtor.”

17 As an example of the sort of property that is “exempt under
Federal law” other than Section 522(d), the reports mentioned
homestead land protected by 43 U.S.C. 175 (1976), which provided
that In ſo lands acquired under the provisions of the homestead
laws * * * shall in any event become liable to the satisfaction of
any debt contracted prior to the issuing of the patent therefor.”
The other examples provided in the legislative history of Section
522 include some types of benefits that are protected by strong anti-

plans subject to ERISA’s anti-alienation provision gener-
ally are excluded from the bankruptcy estate, there was
simply no pressing need to list ERISA in the legislative
history of Section 522. On the other hand, if we are
wrong about the meaning of Section 541 (e) (2), Con-
gress’s failure to mention ERISA in the legislative his-
tory of Section 522 still does not provide an adequate
basis to conclude that ERISA is not “Federal law.”
ERISA most definitely is a federal law. In re Komet,
104 B.R. 799, 808 (Bankr. W.D. Tex. 1989).

C. Excluding Respondent’s Pension Benefits From His
Bankruptcy Estate Harmonizes ERISA And The
Bankruptcy Code

As the court of appeals stated, Pet. App. 16a, citing
Morton v. Mancari, 417 U.S. 535 (1974), coordinate
federal statutes should be read in harmony whenever
possible. Indeed, when two federal statutes are capable
of co-existence, it is the affirmative duty of the courts,
absent clear direction to the contrary, to interpret the
statutes So as to give effect to both. Id. at 551. Apply-
ing Bankruptcy Code Section 541(c) (2) according to its
terms (and, thus, to exclude from the bankruptcy estate
a debtor’s interest in a pension plan that contains an
anti-alienation clause mandated by ERISA) avoids a
significant inroad on Congress’s goal, manifest in Section
206(d) (1) of ERISA, of preserving retirement benefits
from the demands of a participant’s creditors. Thus,
the court of appeals’ decision in this case interprets

alienation provisions, such as the provision ibiti -
ation of benefits payable under the — — be
Compensation Act, 33 U.S.C. 916. However, although such benefits
are protected by an anti-alienation provision, they are not held in
trust, and would not be excluded from the bankruptcy estate pursu-
ant to Section 541(c) (2) under our interpretation of that provision
because it applies only to benefits held “in a trust.”

ERISA’s anti-alienation provision and the Bankruptcy
Code in a manner that gives effect to both.“

On the other hand, petitioner’s interpretation of Bank-
ruptey Code Section 541(c)(2) would nullify ERISA’s
anti-alienation provisions in situations where a pension
plan did not meet state law requirements for a spend-
thrift trust. Petitioner’s interpretation thus leads to the
incongruous result that pension benefits subject to
ERISA’s anti-alienation rule are fully protected from
creditors until the filing of a bankruptcy petition in fed-
eral court, at which time their protection becomes de-
pendent on state law. See John Hancock Mutual Life
Insurance Co. v. Watson (In re Kincaid), 917 F.2d
1162, 1169-1170 (9th Cir. 1990) (Fletcher, J. con-
curring). Petitioner's interpretation thus creates an
incentive for creditors to force debtors into involuntary
bankruptcy proceedings in order to reach pension funds
that otherwise would be protected. See In re Moore, 907
F.2d at 1480; Gladwell, 950 F.2d at 675. Furthermore,
because petitioner’s interpretation makes the application
of ERISA’s anti-alienation provision dependent on state
law, it is contrary to ERISA’s broader purpose of ensur-
ing uniform treatment of pension plans throughout the
country. See Fort Halifax Packing Co. v. Coyne, 482
U.S. 1, 9 (1987).

An interpretation of one federal statute that so under-
cuts another is to be avoided, unless that is the clear
intent of Congress. Such intent is not evident here, either
in the Bankruptcy Code or in ERISA. By contrast, the
natural reading of Section 541 /e) (2) endorsed by the

18 Contrary to petitioner’s suggestion, Br. 15, 16, 20, 42-46,
ERISA’s preemption provision affords little guidance with respect
to the proper resolution of the question presented in this case.
Section 514(d) of ERISA, 29 U.S.C. 1144(d), provides that Injoth-
ing in this [Act] shall be construed to alter, amend, invalidate,
impair, or supersede any law of the United States.” But that merely
begs the question: if “applicable nonbankruptcy law” includes
ERISA, then ERISA does not interfere with the Bankruptcy Code.

—ͤ— a

27

court of appeals in this case avoids differential treatment
of participants in pension plans containing the anti-alien-
ation clause mandated by ERISA and gives force to such
clauses.

As a frequent creditor in bankrup roceedings, the
United States is not unmindful of ~~ — Ag
ness of discharging debtors from their obligations while
allowing the debtors to retain substantial assets.“ How-
ever, this Court has already declined, under more com-
pelling circumstances than those presented by the filing
of a petition in bankruptcy, to carve out an equitable
exception to ERISA’s anti-alienation provision. See
Guidry, 493 U.S. at 376. As this Court recognized, the
imposition of safeguards against potential abuse of the
bankruptey forum is a task more properly undertaken
directly by Congress.“

It is possible for a debtor to build up a substantial interest in

a pension plan that is subject to ERISA. However, it is not ible
for a debtor quickly to transfer substantial assets into a —
plan — — of bankruptcy because ERISA restricts the
amounts that may be contributed annually to an individual’s

See, e. g., 26 U.S.C. 41800 (1). *

At present, several bills have been introduced to clarify this
question. E.g., S. 1985, 102d Cong., 2d Sess. § 202 (1992) (adding
a third paragraph to Section 541(c) explicitly excluding from the
estate “any rights of debtor” to various qualified plans).

CONCLUSION
The judgment of the court of appeals should be affirmed.
Respectfully submitted.

KENNETH W. STARR

APRIL 1992

APPENDIX

11 U.S.C. 522 provides in pertinent part:

(b) Notwithstanding section 541 of this title, an
individual debtor may exempt from property of the
estate

(2)(A) any property that is exempt under
Federal law, other than subsection (d) of this
section, or State or local law that is applicable
on the date of the filing of the petition at the
place in which the debtor’s domicile has been
located for the 180 days imediately preceding
the date of the filing of the petition, or for a
longer portion of such 180-day period than in
any other place * * *.

d) The following property may be exempted un-
der subsection (b) (1) of this section:

8 * * * e
(10) The debtor’s right to receive—

(E) a payment under a stock bonus, pen-
sion, profitsharing, annuity, or similar plan
or contract on account of illness, disability,
death, age, or length of service, to the extent
reasonably necessary for the support of the
debtor and any dependent of the debtor,
unless—

(i) such plan or contract was estab-
lished by or under the auspices of an
insider that employed the debtor at the
time the debtor’s rights under such
plan or contract arose;

(la)

2a

(ii) such payment is on account of
age or length of service; and

(iii) such plan or contract does not
qualify under section 401(a), 403 (a),
403(b), 408, or 409 of the Internal
Revenue Code of 1954 (26 U.S.C.
401(a), 403(a), 403(b), 408, or 409).

11 U.S.C. 541 (e) (2) provides:

A restriction on the transfer of a beneficial inter-
est of the debtor in a trust that is enforceable under
applicable nonbankruptcy law is enforceable in a case
under this title.

26 U.S.C. 401 (a) (13) provides in pertinent part:
Assignment and alienation.—

(A) In general.—A trust shall not consti-
tute 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. For purposes of the
preceding sentence, there shall not be taken into
account any voluntary and revocable assignment
of not to exceed 10 percent of any benefit pay-
ment made by any participant who is receiving
benefits under the plan unless the assignment
or alienation is made for purposes of defraying
plan administration costs. For purposes of this
paragraph a loan made to a participant or bene-
ficiary shall not be treated as an assignment or
alienation if such loan is secured by the partici-
pant’s accrued nonforfeitable benefit and is ex-
empt from the tax imposed by section 4975
(relating to tax on prohibited transactions) by
reason of section 4975 (d) (1). This paragraph
shall take effect on January 1, 1976 and shall
not apply to assignments which were irrevocable
on September 2, 1974.

3a

a (B) Special rules for domestic relations
orders.—Subparagraph (A) shall apply to the
creation, assignment, or recognition of a right
to any benefit payable with respect to a partici-
pant pursuant to a domestic relations order,
except that subparagraph (A) shall not apply
if the order is determined to be a qualified do-
mestic relations order.

29 U.S.C. 1003(b) provides in pertinent part:

The provisions of this subchapter shall not apply
to any employee benefit plan if—

(1) such plan is a governmental plan (as de-
fined in section 1002(32) of this title) ;

(2) such plan is a church plan (as defined in
section 1002(33) of this title) with respect to
which no election has been made under section
410 (d) of Title 26 * * *.

29 U.S.C. 1051 provides in pertinent part:

* * * * *

This part shall apply to any employee benefit plan
described in section 1003(a) of this title (and not

ee under section 1003(b) of this title) other
than—

* * * * *

(6) an individual retirement account or an-
nuity described in section 408 of Title 26, or a
retirement bond described in section 409 of
Title 26 (as effective for obligations issued be-
fore January 1, 1984) * *.

29 U.S.C. 1056(d) provides in pertinent part:

(1) Each pension plan shall provide that benefits
provided under the plan may not be assigned or

alienated.
(2) For the purposes of paragraph (1) of this
subsection, there shall not be taken into account any

4a

voluntary and revocable assignment of not to exceed
10 percent of any benefit payment, or of any irre-
vocable assignment or alienation of benefits executed
before September 2, 1974. The preceeding sentence
shall not apply to any assignment or alienation made
for the purposes of defraying plan administration
costs. For purposes of this paragraph a loan made
to a participant or beneficiary shall not be treated
as an assignment or alienation if such loan is secured
by the participant’s accrued nonforfeitable benefit
and is exempt from the tax imposed by section 4975
of Title 26 (relating to tax on prohibited transac-
tions) by reason of section 4975(d) (1) of Title 26.

(3) (A) Paragraph (1) shall apply to the creation,
assignment, or recognition of a right to any benefit
payable with respect to a participant pursuant to a
domestic relations order, except that paragraph (1)
shall not apply if the order is determined to be a
qualified domestic relations order. Each pension plan
shall provide for the payment of benefits in accord-
ance with the applicable requirements of any quali-
fied domestic relations order.

26 C. F. R. 1.401 (a)-13 provides in pertinent part:

(a) Scope of the regulations. This section applies
only to plans to which section 411 applies without
regard to section 411 e) (2). Thus, for example, it
does not apply to a governmental plan, within the
meaning of section 414(d); a church plan, within
the meaning of section 414(e), for which there has
not been made the election under section 410(a) to
have the participation, vesting, funding, ete. re
quirements apply; or a plan which at no time after
September 2, 1974, provided for employer contribu-
tions.

(b) No assignment or alienation—(1) General
rule. Under section 401(a) (13), a trust will not be
qualified unless the plan of which the trust is a

— —

—

—ä—— —— —äↃ— —

5a

part provides that benefits provided under the plan
may not be anticipated, assigned (either at law or
in equity), alienated or subject to attachment, gar-

nishment, levy, execution or other legal or equitable
process.

. „ „. GOVERNMENT lie OFrice, 1992 312324 45393

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0223%3A09. Public record. Not legal advice.