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United States District Court, Southern District of New York

May 23, 2003


The opinion of the court was delivered by: Shira Scheindlin, District Judge


Defendant has filed a motion pursuant to 18 U.S.C. § 3664 (k) to amend the terms and conditions of the previously imposed restitution order requiring him to make a lump-sum payment of $60,000 and to pay 10% of his gross monthly earnings throughout his period of supervised release. Defendant now claims that the bulk of his remaining assets, now worth approximately $67,000, are in pension funds protected by the anti-alienation provision of the Employee Retirement Income Security Act ("ERISA")*fn1 and the Supreme Court's holding in Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365 (1990) ("Guidry I"). For the following reasons, defendant's motion is denied.

In Guidry I, the Supreme Court invalidated a constructive trust placed on pension benefits so that a union could recover funds embezzled by one of its officers. See Id. at 372-74. The Court did not consider whether ERISA only prohibits the alienation and assignment of the right to receive undistributed pension funds or whether it also prohibits the alienation of funds that have already been distributed to the plan beneficiary, a question not addressed by the statutory language. This question was answered by the Tenth Circuit upon remand in Guidry v. Sheet Metal Workers Nat'l Pension Fund, 10 F.3d 700 (10th Cir. 1993) ("Guidry II"), aff'd in relevant part on reh'g en banc, 39 F.3d 1078 (10th Cir. 1994) ("Guidry III").

In Guidry III, the court analyzed applicable administrative regulations to determine the scope of section 206(d)(1), stating as follows:

Treasury regulations define "assignment" and "alienation" as "[a]ny direct or indirect arrangement (whether revocable or irrevocable) whereby a party acquires from a participant or beneficiary a right or interest enforceable against the plan in, or to, all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary." 26 C.F.R. § 1.401 (a)-13 (c)(1) (ii) (1992) (emphasis added) The terms "alienation" and "assignment" are meant only to cover those arrangements that generate a right enforceable against a plan. Therefore, "benefits" are protected by the anti-alienation provision of section 206(d)(1) only so long as they are within the fiduciary responsibility of private plan managers. Following distribution of benefits to the plan participant or beneficiary, a creditor no longer has a right against the plan. Instead, the creditor must collect directly from the participant or beneficiary or, as here, initiate an enforceable garnishment procedure against a third-party bank who holds the funds paid to the participant or beneficiary.
39 F.3d at 1082-83. The court concluded by affirming, per curiam, the Guidry II panel which held that "ERISA section 206(d)(1) protects ERISA-qualified pension benefits from garnishment only until paid to and received by plan participants or beneficiaries." Id. at 1083.

Thus, ERISA's anti-alienation provision applies only to actions brought against a retirement plan, not to actions against a beneficiary. See Trucking Employees of North Jersey Welfare Fund, Inc. v. Colville, 16 F. 52, 56 (3d Cir. 1994) ("The regulation construes the statute to forbid alienation of rights to future payments, rather than alienation of the actual money paid out."); Wright v. Riveland, 219 F. 905, 919-21 (9th Cir. 2000) (applying Guidry II and Colville to uphold statute authorizing deductions from all funds received by inmates from outside sources, including benefits received from ERISA-qualified pension plans). Even the case cited by defendant, United States v. Smith, 47 F.3d 681 (4th Cir. 1995), draws the following distinction:

Where an employee elects to draw on [his] ERISA plan prior to [his] retirement, [he] forfeits the protection provided by the Act. Where, however, the funds are paid pursuant to the terms of the plan as income during retirement years, ERISA prohibits their alienation.
Id. at 683.

In sum, ERISA's anti-alienation provision is inapplicable for a number of reasons. First, the order of restitution does not explicitly direct Kalani to liquidate his IRAs and 401(k) in order to make the lump-sum payment. Rather, these assets were included in determining Kalani's total net worth to determine the amount, not the source, of restitution. Kalani was ordered to pay $60,000 in an up-front, lump-sum payment. He has not done so. How he obtains the money to make this payment is up to him. This Court is not directing Kalani to liquidate his pension assets. He has many options — e.g., a loan, credit, or alternate financing. Finally, at the time of sentencing, Kalani had $57,000 in a savings account and $2,800 in a checking account. If he had made the required $60,000 lump-sum payment, as he was ordered to do, his pension assets would not be in issue. At sentencing, this Court specifically sought to avoid the potential dissipation of assets by requiring an up-front, lump-sum payment. Kalani ignored this Court's Order and now argues that in order to comply with the Order, he must liquidate his pension funds as they are his "only substantial assets at this time." Motion to Amend Terms and Conditions of Restitution Order and of Supervised Release at 4, n. 3. To reward Kalani for dissipating assets that could have been used to pay restitution would be a troubling result.

Accordingly, Kalani is hereby ordered to pay the $60,000 lump-sum payment within thirty (30) days of the date of this Order. If Kalani fails to do so, Paula F. Dunn of the United States Probation Department is hereby ordered to commence violation proceedings against Kalani, the result of which may be the imposition of an additional term of incarceration. The Clerk of the Court is directed to close this motion.


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