[16918]
December 24, 2003
TO: PENSION MEMBERS No. 57-03
PENSION OPERATIONS ADVISORY COMMITTEE No. 75-03
RE: IRS RULING PERMITS GARNISHMENT OF 401(K) PLAN TO COLLECT FINE
The attached IRS private letter ruling (200342007) provides that the federal government
may garnish amounts in an employee’s 401(k) plan in order to collect a fine imposed following
a criminal case without violating the anti-alienation rules under Code section 401(a)(13). The
ruling involves an individual who participated in his employer’s 401(k) plan and was convicted
of federal drug-related offenses, for which he was imprisoned and assessed a fine. After the
government sought to garnish the employee’s 401(k) plan under the Federal Debt Collection
Procedures Act of 1977 (“FCDPA”), the individual’s employer requested a ruling from the IRS
that the employer’s compliance with the garnishment order would not violate Code section
401(a)(13) (this section prohibits the benefits under a plan from being assigned or alienated,
with a violation of this rule disqualifying the plan).
In the ruling, the IRS noted that a federal criminal procedure rule (18 USC 3613(c))
provides that a fine imposed as part of either (1) a criminal sentence or (2) an order of
restitution, is a lien in favor of the federal government on all property of the person fined, and is
to be treated as if the liability were a tax liability. The regulations under Code section 401(a)(13)
provide that the anti-alienation rule does not apply to a federal tax levy. Citing two recent court
decisions,1 the IRS concluded that the fine is to be treated as if it were a federal tax liability and
therefore the employer’s execution of the garnishment order will not violate the anti-alienation
rules under Code section 401(a)(13).
Lisa Robinson
Assistant Counsel
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(http://members.ici.org) and search for memo 16918, or call the ICI Library at (202) 326-8304 and request the
attachment for memo 16918.
Attachment (in .pdf format)
1 U.S. v. Tyson, No. 02-X-73808 (E.D. Mich., April 9, 2003) and U.S. v. Clark, No. 02-X-74872 (E.D. Mich., June 11, 2003).