ROBERT K. RODIBAUGH, Bankruptcy Judge.
In this voluntary Chapter 7 proceeding filed on March 12, 1981, by debtors Albert
The issue is whether the bankruptcy estate includes debtors' right to withdraw certain proceeds from an employee savings and profit sharing program which is part of an Employee Retirement Income Security Act (ERISA) qualified plan.
The debtor participated in the Savings and Profit Sharing Fund of Sears Employes [Fund] established by Sears, Roebuck and Co. for the benefit of its employees. The Fund Plan contains the standard anti-alienation, anti-assignment clause (section 7.8 of the Plan) required by ERISA, 29 U.S.C. § 1056(d) (1976), and the Internal Revenue Code, 26 U.S.C. § 401(a) (1976), in order to qualify the Fund as tax exempt. In general, the distribution of employer's and employee's contributions into the Fund usually begins upon the retirement, disability, termination, or death of the participant (see section 7 of Fund Plan). However, the participant may elect to withdraw some or all of the deposits made by him (i.e., his unrestricted interest) by giving prior written notice (see sections 3.5 and 3.6 of Fund Plan).
The debtor alleges that the anti-alienation provision creates a spendthrift trust which is valid in Indiana and which is specifically excluded from the estate property under section 541(c)(2) of the Bankruptcy Code. The trustee contends that the debtor's right to withdraw his own contributions and accretions with no disability is an asset of the estate and must be turned over to the trustee.
Section 541 of the Bankruptcy Code determines what constitutes estate property:
Section 541. Property of the estate
The Code, however, neither defines "property" nor "interest in property." Courts therefore turn to nonbankruptcy law for the needed definitions, and then to bankruptcy law to determine whether that interest passes to the bankruptcy trustee as property of the bankruptcy estate.
The Indiana Statutes specifically provide that an interest in an employee benefit plan is property:
Ind.Code Ann. § 32-3-2-1 (Burns Supp. 1983). The debtor had such an interest because of his participation in the Sears plan for its employees.
Both the legislative history and court decisions reflect congressional intent that the
The question, then, is whether the debtors had an interest in the Savings and Profit Sharing Plan at the time of the filing of the petition. Without a doubt they did. The debtor Albert Berndt, as a Sears employee, chose to participate in the Fund (Plan, § 2.1) and made contributions to it (Plan, § 3.2). Those deposits made by him were under his control and could be withdrawn by him without penalty by written notice (Plan, §§ 3.5, 3.6). Evidence indicated that debtor's net deposits balance was $1,780.31; that he could have withdrawn all or a portion of that amount on the date of filing his petition; and that he did withdraw $355.52 on August 3, 1981, almost five months after filing his petition. The savings "portion" of the Savings and Profit Sharing Fund in this instance was essentially a type of savings account with special tax benefits granted in order to encourage citizens to save for retirement (Plan, § 1.1). The debtor had both control of and access to his own deposits into the Fund, and therefore had an interest in the funds as required under Section 541(a). In contrast, the pension "portion" of the Fund was not under the debtor's control. He could withdraw or receive distribution of those contributions only on retirement, disability, termination of employment, or death. Pension plans of this type have often been found not to be the property of the estate.
This court has held that future benefits are not property of the estate under section 541 because the debtor has no present right to withdraw those benefits and no legal right to demand them at the present time in a court of law. (See unpublished cases concerning future wages: Matter of Haynes, 9 B.R. 418 (Bkrtcy.N.D.Ind. 1981); Matter of Harter, 10 B.R. 272 (Bkrtcy.N.D.Ind.1981).) In contrast, however, this court has found that IRA funds inure to the estate because of the debtor's present control and access. (See Matter of Schwartz, No. 80-10843 (Bkrtcy.N.D.Ind. 1982) (unpublished). See also In re Macy, 4 B.C.D. 94 (Bkrtcy.D.Or.1978); In re Mendenhall, 4 B.R. 127 (Bkrtcy.D.Or.1980).) For the same reasons, the court now finds that, because the debtor had a present right to withdraw his contributions, the savings portion of the Sears Fund is property of the bankruptcy estate and may pass to the Trustee.
The debtor has claimed, however, that the funds are not property of the estate because they fall within the § 541(c)(2) "spendthrift trust" exception.
Section 541(c)(2) states that an interest of the debtor is not property of the estate if
The legislative history indicates that this section is intended to preserve restrictions on transfer of a spendthrift trust. In the provision the Code explicitly relies on nonbankruptcy law. Indiana case law has long upheld the validity of the spendthrift trust. Locke v. Barbour, 62 Ind. 577 (1878). The debtor argues that this ERISA qualified fund is such a spendthrift trust because it was
Debtors argue that the Sears Plan's anti-alienation provision precludes the debtors' funds from passing to the bankruptcy estate. However, courts have recognized that Congress did not intend ERISA's provisions to supersede federal law (Matter of Baviello, 12 B.R. 412, 417, (Bkrtcy.E.D.N.Y.1981)). Furthermore, such provisions do not create a spendthrift trust or remove property from the estate. Matter of Ross, 18 B.R. 364, 367 (N.D.N.Y.1982). The basis of their decisions is that the debtors' complete right of withdrawal destroyed the spendthrift trust exception provided by § 541(c)(2), despite the inclusion of an anti-alienation clause.
Moreover, under the common law of trusts,
Bogert, supra at 438-439, cited in Matter of Witlin, 640 F.2d 661, 663 (5th Cir.1981). See Carter v. American Trust Co., 82 Ind.App. 587, 589, 147 N.E. 158 (1924).
Debtors refer to In re Threewitt, 24 B.R. 927, 9 B.C.D. 1225 (D.Kan.1982) as authority for the proposition that the trustee is not entitled to turnover of the pension/profit sharing funds of the debtor. In that case the United States District Court reversed a Kansas Bankruptcy Court's ruling that a debtor's interest in an ERISA-qualified plan is property of the bankruptcy estate. [In re Threewitt, 20 B.R. 434 (Bkrtcy.D. Kan.1982).]
The facts in Threewitt are quite similar to those herein. A Chapter 7 debtor had participated in an ERISA-qualified Investment Savings Plan in which employer and employee contributions were accumulated. Employees had a broad right of withdrawal. The trustee sought turnover of the corpus of the Plan.
The Bankruptcy Court held that the debtor's interest in the Plan fell outside the spendthrift trust exception provided by section 541(c)(2) of the Bankruptcy Code. Because his interest in the Plan was largely self-created, and because he could voluntarily withdraw much of his interest in the plan, that court found that the Plan did not fit the description of a traditional spendthrift trust. In re Threewitt, 20 B.R. at 438.
The District Court disagreed with the Bankruptcy Court's "unnecessarily narrow construction" of section 541(c)(2). In re Threewitt, 24 B.R. at 929, 9 B.C.D. at 1226. A more reasonable interpretation of that section is a broader reference to any trust barring creditors from reaching a beneficiary's interest.
Idem. In holding that the debtor's property was not property of the bankruptcy estate,
In a recent decision an Illinois bankruptcy court considered the District Court's analysis in Threewitt and found it not to be persuasive. In re DiPiazza, 29 B.R. 916, 10 B.C.D. 618, 621 (Bkrtcy.N.D.Ill.1983). Once again the facts concerned a chapter 7 debtor with present withdrawal rights in an ERISA-qualified pension and profit sharing plan. The Illinois bankruptcy court, describing the District Court's interpretation of § 541(c)(2) as "overly broad," stated that Congress's legislative history behind section 541(c)(2) explicitly referred to the exception of only spendthrift trusts. Id. at 619, 621. (See H.R.Rep. No. 595, 95th Cong., 2d Sess. 396, reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5963, 6325; 4 Collier on Bankruptcy, ¶ 541.23 (15th ed. 1983).) Furthermore, the District Court did not distinguish between a trustee's turnover order and a creditor's garnishment action.
The DiPiazza court recognized the breadth of the § 541(a)(1) definition of property, and found that ERISA plans, not spendthrift trusts under Illinois law, are therefore not excludable from that definition by means of § 541(c)(2). The court then reached its decision that the debtor's interest was part of the bankruptcy estate by weighing the extent of dominion and control the debtor had over the corpus of the ERISA plan. The bankruptcy court compared the debtor's right of withdrawal over the corpus with similar rights found in KEOGH plans, and then concluded that, as has been held for KEOGH plan participants, that right of withdrawal destroyed the spendthrift trust exception provided by section 541(c)(2). In re DiPiazza, supra at 620.
This court is substantially in agreement with the Illinois Bankruptcy Court's analysis. In addition to following that court's approach, however, this court also examined the source of the protection from creditors mandated by ERISA. That requirement of the inclusion of such a provision in qualified ERISA plans is found at 29 U.S.C. § 1056(d)(1):
The ERISA definition of "pension plan" is given in 29 U.S.C. § 1002:
The pension plan's benefits that may not be assigned or alienated, therefore, are retirement benefits or deferred income.
Courts have commented on the intent of Congress in enacting ERISA and proscribing alienation and assignment:
Watts v. Wikoff Color Corp. of S.C., 543 F.Supp. 493, 496 (D.C.Tex.1981), aff'd 683 F.2d 416 (5th Cir.1982).
Senco of Florida, Inc., v. Clark, 473 F.Supp. 902, 908 (D.C.Fla.1979).
American Telephone and Telegraph Co. v. Merry, 592 F.2d 118, 124 (2d Cir.1979).
Therefore, it is clear that ERISA concerns retirement programs, and intends to protect the benefits due at retirement. In addition, nonbankruptcy law has shown that the clause against alienation and assignment was not intended to bar execution of state court judgments concerning child support, alimony, or other money judgments. Thus protection from creditors is not absolute.
Many courts have found that pension plans are property of the bankruptcy estate, despite the ERISA requirement. They frequently comment that the restrictions on alienation and assignment are required for qualification of the trust for tax exemptions, not bankruptcy exemptions. See Matter of Kelley, 31 B.R. 786 (Bkrtcy.N.D. Ohio 1983); In re Hinshaw, 23 B.R. 233 (Bkrtcy.D.Kansas 1982). Those plans included in the estate may, however, be entitled to exemption under section 522(d)(10)(E), which remove from the estate benefits that are like future earnings. (See footnote 3, supra). See In re Hinshaw, supra; In re Clark, 18 B.R. 824 (Bkrtcy.E.D. Tenn.1982); Matter of Kochell, 26 B.R. 86 (Bkrtcy.W.D.Wisc.1982).
Although this court agrees with the DiPiazza court's rationale, it does not concur in its decision to turn over all pension plan benefits to the Trustee. There is a note of reluctance in the opinion of the Illinois bankruptcy court:
This court believes that the equitable solution comes from a recognition of the fact that a qualified ERISA plan may serve more than one purpose. In the instant plan of the debtor Berndt, the Savings and Profit Sharing Fund of Sears Employes, the retirement fund portion is only one aspect
(Fund Plan § 1.1)
Although the anti-alienation clause required under an ERISA plan may bar creditors from retirement benefits, it should not operate to bar creditors from the present benefits included in a plan but not part of the retirement plan.
Accordingly, debtors' objection to Trustee's application for turnover is denied. Debtors are ordered to turn over to the Trustee documentation of and all present benefits in the Sears employee stock purchase program as of March 12, 1981.