The ERISA consultants at the Retirement Learning Center
Resource regularly receive calls from financial advisors on a broad array of
technical topics related to IRAs, qualified retirement plans and other types of
retirement savings plans. We bring Case of the Week to you to highlight the
most relevant topics affecting your business.
A recent call with a financial advisor from Georgia is
representative of a common inquiry related to the anti-alienation rules under
the Employee Retirement Income Security Act of 1974 (ERISA). The advisor asked:
“If a former employee embezzled money from his employer
(who sponsors a 401(k) plan), can the employer/plan sponsor use the terminated
employee’s 401(k) plan balance to help offset the financial loss to the
business?”
Highlights of the Discussion
No, the anti-alienation provisions of ERISA protect the
former employee’s 401(k) account balance in this case, and prohibit the plan
sponsor from using plan assets as an offset for the stolen funds.
ERISA provides for only four narrow exceptions to its strict
anti-alienation rules:
- for payments to alternate payees pursuant to
qualified domestic relations orders (QDROs) in cases of divorce or legal
separation [ERISA Sec. 206(d)(3)];
- for payments of IRS tax levies [Treasury
Regulation 1.401(a)-13];
- for payments of federal court garnishments
stemming from the imposition of criminal fines and orders of restitution
(Mandatory Victim Restitution Act of 1996); and
- to satisfy liabilities of the participant to the
plan due to criminal convictions, civil judgments, or administrative
settlements involving the participant’s misconduct with respect to the plan
[Taxpayer Relief Act of 1997, ERISA Sec. 206(d)(4) and IRC Sec. 401(a)(13)].
Conclusion
The anti-alienation rules of ERISA make it difficult for
anyone except the plan participant to lay claim to qualified retirement plan
assets, although there are a few exceptions.
Click
here for the original article.