Administration August 1, 2004

Kansas Lawmakers Cut Back Pension Reform Proposal

January 8, 2004 (PLANSPONSOR.com) - Kansas lawmakers significantly reduced and delayed a plan to help bail out the state's troubled public employee pension after Governor Kathleen Sebelius said the state couldn't afford the original proposal.
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The Joint Committee on Pensions, Benefits and Investments still recommended the state issue $500 million in bonds, to provide an infusion of cash and boost the investment earnings of the Kansas Public Employees Retirement System (KPERS), according to a Journal-World news story.

However, the committee, at Sebelius’ request, reconsidered its proposals for paying off the bonds. By investing the funds and earning 8%, state financial experts said KPERS would reap a benefit of $4 billion over the 30-year payback of the bonds. But there is no assurance the investments would produce the 8% returns.

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Under the original notion, repayment of the principal and interest on the bonds would have cost about $40 million per year and come out of the state’s general tax fund.But Sebelius’ budget director, Duane Goossen, said that because of a tight budget, those payments weren’t in the financial picture. Instead, Sebelius recommended paying off the bonds by taking the money out of the state’s contributions to the pension fund. Those contributions are scheduled to start increasing next year. Under Sebelius’ proposal, the KPERS benefit would drop from $4 billion to $1 billion, officials said.

Democrats on the pension committee defended Sebelius’ position, saying that there are too many budget priorities and not enough money to go around.”Though we desperately need to address KPERS, it is not the only desperate problem we have,” said state Representative Geraldine Flaharty, D-Wichita.

Republicans accused Sebelius, a Democrat, of improperly putting off the KPERS aid. Because of inadequate state funding and stock market losses, the fund is running a $3 billion deficit. The Republicans said paying off the bonds with money from the state’s pension contributions negated most of the benefit to KPERS. “I don’t think it’s worth the risk,” state Representative Melvin Neufeld, R-Ingalls, said.

KPERS manages $9 billion in assets for 240,000 members.

Compliance July 30, 2004

Pension Can Be Used to Pay Criminal Judgment

July 30, 2004 (PLANSPONSOR.com) - Pension benefits used to satisfy a court's judgment in a criminal case do not run afoul of the Employee Retirement Income Security Act's (ERISA) anti-alienation provision.
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The US 1 st Circuit Court of Appeals, affirming an earlier decision by theUS District Court for the District of Massachusetts, found ERISA does not restrict the alienation of pension benefits that have already been distributed to plan beneficiaries.   The appellate court also pointed out that four of the five courts of appeals that have taken up this issue have reached similar decisions.  

“We find that the district court properly denied the motion to strike as to ERISA benefits,” said Circuit Judge Sandra Lynch, writing for the court.   “ERISA’s anti-alienation provision does not apply where, as here, the funds have already been disbursed to the plan beneficiary.”

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Case History

Jennifer Hoult was awarded a $500,000 verdict in 1993 against her father,David Hoult, for sexually abusing her throughout her childhood. The 1st Circuit affirmed that verdict in 1995, yet David did not pay the judgment in full.

In an effort to collect the unpaid balance, Jennifer filed suit against her father in the Massachusetts District Court, the same district court that awarded her the $500,000 judgment.   In May 2002, the district court found that David had fraudulently conveyed over $130,000 in assets to avoid paying the judgment. Two weeks later, the court entered an order requiring him to deposit all his income in a designated bank account and to limit his withdrawals from that account to $2,900 per month, a sum meant to cover his reasonable living expenses.

David then filed a motion to protect the$4,800 in monthly pension benefits that he receives, arguing that ERISA prohibited the alienation of those benefits. The district court denied the motion.   David appealed the decision.

Decision

The court read ERISA Section 206(b)(1) to cover only funds held in the ERISA governed account, and not prohibiting creditors from staking a claim on pension benefits once they were no longer controlled by the administrator.   Had Congress intended pension distributions to be inaccessible, the court said, it could easily have employed the type of language found, for example, in the Veterans Benefits Act, which prohibits attachment of benefits “either before or after receipt by the beneficiary.”

“The regulations promulgated by the Secretary of Treasury further reinforce our interpretation. Once benefits are distributed to the beneficiary, a creditor’s rights are enforceable against the beneficiary, not against the plan itself; accordingly, under the regulations, [ERISA Sec. 206(d)(1)] does not apply,” the court said.   “The Treasury Secretary’s interpretation is a reasonable one, and we decline to disturb it. We find that the district court properly denied the motion to strike as to ERISA benefits.”

The case is  Hoult v. Hoult .

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