October 2, 1990
TO: PENSION MEMBERS NO. 36-90
RE: CIRCUIT COURT HOLDS ERISA PLAN ASSETS EXEMPT FROM
BANKRUPTCY ESTATE
__________________________________________________________
The United States circuit court for the Fourth Circuit
(Maryland, Virginia, West Virginia, South Carolina and North
Carolina) recently held that qualified pension and profit sharing
assets are excluded from a debtor's bankruptcy estate because
they are assets restricted under "applicable non-bankruptcy law."
Section 541(c)(2) of the U.S. Bankruptcy Code provides that
a restriction on the transfer of a beneficial interest of the
debtor in a trust that is enforceable under applicable non-
bankruptcy law is enforceable for purposes of the Bankruptcy
Code. The fourth circuit determined that the Employee Retirement
Income Security Act of 1974 ("ERISA"), which requires retirement
plan trusts to prohibit the assignment or alienation of plan
assets, protects the plan accounts of bankrupt participants under
Section 541(c)(2) of the Bankruptcy Code.
The case is significant because the court declined to
follow the conclusions of many other circuits which interpret the
term "applicable non-bankruptcy law" to refer exclusively to
state spendthrift trust law. Such decisions protected assets in
retirement plans only if such plans would meet the requirements
of enforceable state spendthrift trusts, regardless of ERISA's
anti-alienation provisions. The fourth circuit's ruling "ensures
that the security of employee retirement benefits will not depend
on the particularities of state spendthrift trust law." The
court's decision was influenced by the fact that payment of
retirement plan assets to a debtor's bankruptcy trustee would
disqualify the plan under the tax code and ERISA.
A copy of the court's opinion is attached. We will keep
you informed of related developments.
W. Richard Mason
Assistant General Counsel
Attachment