Tuesday, February 21, 2006

Pension Forfeitures for Criminal Conduct: Public Employment vs. Private Employment

From the Tennessean.com:

Tennessee's new ethics law takes another stab at stripping away the pensions of corrupt lawmakers who are convicted of crimes of official misconduct.

The provision was carefully written — for constitutional reasons — to require legislators to agree each time they are elected to waive their pension rights if they are ever convicted of a felony related to malfeasance in office.

Because this law deals with a government retirement plan it does not concern ERISA. But one may ask: could a private employer covered by ERISA take away an employee's pensions because of criminal misconduct either at or outside the workplace?

The general answer is no as there is an anti-alienation rule (IRC Code Section 401(a)(13); ERISA Section 206(d)) for qualified plans, which generally prohibits the alienation of a participant's benefits under a plan.  So, for instance, if a company goes into bankruptcy, creditors are almost never able to obtain their money from the company through the company's pension plans. See Patterson v. Shumate, 504 U.S. 753 (1992).

When it comes to criminality on the part of a ERISA plan participant, the same rules generally apply and the criminal's pension cannot be forfeited.  In such cases, courts explain that the anti-alienation provision prohibits creditors and others from pursuing claims against pension plan funds until the proceeds of the pension plan have been released to the beneficiary's hands, even when criminal conduct is involved.  See Robbins v. DeBuono, 218 F.3d 197, 203 (2d Cir. 2000); Guidry v. Sheet Metal Workers Nat'l Pension Fund, 493 U.S. 365, 376 (1990).

So there appears to be more flexibility in taking away the pensions of public employees than private employees, given the stringency of the anti-alienation provisions under the IRC and ERISA.  For an excellent discussion of pension forfeiture in these two contexts, see James B. Jacobs, Coleen Friel & Edward O'Callaghan, Pension Forfeiture: A Problematic Sanction for Public Corruption, 35 Am. Crim. L. Rev. 57 (1997).



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