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Ninth Circuit: Vested Retirement Benefits May Be Garnished to Pay Criminal Fines

The Ninth Circuit U.S. Court of Appeals, sitting en banc, held that the federal Mandatory Victims Restitution Act of 1996 (MVRA) trumps the anti-alienation provisions of the Employee Retirement Income Security Act of 1974 (ERISA), so as to permit the government to garnish the personal portion of a prisoner’s retirement benefits to satisfy a criminal restitution order.

Raymond Novak was convicted of federal crimes against his employer and sent to prison. Because his crimes involved fraud of $3.36 million, he was ordered to pay restitution in that amount. The government sought to attach his legitimately earned retirement benefits from an earlier employer to satisfy the restitution amount.

In tension were two federal statutes: MVRA, which provides for attachment of any property to pay such fines (18 U.S.C. § 3613, et seq.), and ERISA, which contains provisions shielding retirement plans from such attachment (“anti-alienation”). Al-though MVRA was enacted long after ERISA, this did not necessarily imply the repeal of ERISA’s retirement-income protec-tions. Further complicating the matter was the fact that individual employers might draft retirement plans with different language, thus limiting attachment efforts.

MVRA permitted such attachments of assets “notwithstanding any other federal law.” The question was what the “notwithstanding” clause meant as applied in this case. Since the MVRA clause expressly included Social Security Act retirement benefits, the normal anti-alienation protection of said Act was pierced by the restitution command of MVRA. The appellate court held that private employer ERISA retirement plans likewise would be subsumed by MVRA, subject to their having matured. That is, some retirement plans only vest the sums earned upon the employee reaching age 65 or some other specific milestone. Indeed, plan benefits may not become available to the employee until after he becomes subject to the restitution fine. Such was Novak’s case, as his benefits would not vest until he turned 65 in 2012.

But this did not end the inquiry. Retirement plans may be partitioned to provide separate benefits for plan survivors or spouses. It would be wrong to tax such innocent beneficiaries for the wrongdoings of their relative. Thus, the Ninth Circuit held that while restitution fines trumped retirement-plan protections, those fines could only be collected (1) exclusive of survivors/spouses separate interests and (2) at such time as the plan benefits become collectable by the beneficiary.

Because Novak’s retirement plan had not been introduced into the record, the court did not have a basis to determine if his benefits were currently attachable. Accordingly, and overruling United States v. Jackson, 229 F.3d 1223 (9th Cir. 2000), the Ninth Circuit reversed and remanded to the U.S. District Court to place the plan into the record and determine its attachability. See: United States v. Novak, 476 F.3d 1041 (9th Cir. 2007) (en banc).

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Related legal case

United States v. Novak