OPINION
FACTS
The debtor, James M. West ("West"), was employed by Intel Corporation until January 17, 1986. As an Intel employee, West was an automatic participant in the Intel Profit-Sharing Retirement Plan
The Plan is funded by three types of contributions: salary deferrals, voluntary employee contributions and Intel contributions. Because West did not make any contribution to the Plan, his entire interest in the Plan is a result of employer contributions. As one of several thousand Intel employees, West had no interest in the corporation other than ownership of 10.6175 shares of stock acquired through Intel's Sheltered Employee Retirement Plan. The stock is not at issue on appeal. West was neither an officer nor a director of Intel, and was not a trustee or in control of a trustee of the trust fund.
An employee may not withdraw employer contributions to the Plan until the employee reaches age 60, dies, becomes disabled, or terminates employment at Intel. The Plan does contain a provision allowing participants to borrow from their vested employer contribution account. The loans are restricted in amount, are interest bearing and require repayment within five years of origination, ten years if the loan is used to acquire, construct, reconstruct or substantially rehabilitate the participant's home. West never obtained a loan from the Plan.
West's employment with Intel was terminated on January 17, 1986 as a result of a substantial lay-off of employees. He filed bankruptcy on January 31, 1986. Shortly thereafter, West became entitled to a lump sum distribution of the funds in his Plan account. Under Plan section 10(d), distribution was to be made as soon as reasonably practicable after January 31st.
West sought to exempt his interest in the Plan from the bankruptcy estate and the trustee objected. After a hearing, the court issued a memorandum decision and order, In re West, 64 B.R. 738 (Bankr.D.Or. 1986). The court concluded that the antialienation provision in section 11(a) of the Plan qualified it as a valid spendthrift trust under state law and that therefore West's interest in the Plan was not an asset of the estate pursuant to Bankruptcy Code section 541(a)(2). Id. at 740-43. Alternatively, the court concluded that the Plan was an exempt asset pursuant to Bankruptcy Code section 522(b)(2)(A) because it qualified as a pension under state law. Or.Rev. Stat. section 23.170. Id. at 743-45. The trustee appealed.
ISSUES
1. Whether West's interest in the Intel Plan is an asset of the bankruptcy estate under Bankruptcy Code section 541.
2. Whether West's interest in the Intel Plan is exempt as a "pension" under Or. Rev.Stat. section 23.170.
DISCUSSION
1. Exclusion from the estate
Under Bankruptcy Code section 541(a)(1), all property in which the debtor has a legal or equitable interest is included in the bankruptcy estate. Section 541(c)(2), however, excludes from the estate property in which a "restriction on the transfer of a beneficial interest of the debtor in a trust
Generally, a spendthrift trust may not be self-settled. See Johnson v. Commercial Bank, 284 Or. 675, 588 P.2d 1096 (1978); Nelson v. California Trust Co., 33 Cal.2d 501, 202 P.2d 1021 (1949); Bogert, Trusts and Trustees, 2d ed. section 223. In addition, the beneficiary must not be able to alienate his interest in the trust and must not possess exclusive and effective control over termination or distribution. In cases where pension plans have been included in bankruptcy estates, the distinction between the corporation and the beneficiary has been questionable. See, e.g., In re Lichstrahl, 750 F.2d 1488 (11th Cir.1985) (debtor was sole director, officer, shareholder and employee of professional corporation); In re Goff, 706 F.2d 574 (5th Cir. 1983) (Keough plan); In re Shuman, 78 B.R. 254 (9th Cir.BAP 1987), (debtor was sole officer and shareholder of corporation and a trustee of pension plan); In re Ott, 53 B.R. 388 (Bankr.D.Or.1985) (debtor was sole corporate shareholder); In re Mendenhall, 4 B.R. 127 (Bankr.D.Or.1980) (Keough plan); Mace, 4 B.C.D. 94 (Individual Retirement Account). In the case at bar, West neither settled the trust nor put his own money into it. Nevertheless, the trustee argues that the Plan is not a valid spendthrift trust because West had too much control over the Plan assets. The trustee asserts that West (1) could borrow money against the Plan, (2) could take distribution from the Plan upon termination, and (3), as a result of being laid off, received accelerated vesting.
First, that the beneficiary may borrow from the trust does not necessarily invalidate a spendthrift clause. See Danning v. Lederer, 232 F.2d 610, 614 (7th Cir.1956). Here, West had never borrowed money from the Plan and, if he sought to do so, the trustees of the Plan were not obligated to make the loan. Moreover, the trustee does not suggest that the repayment requirements were anything but legitimate. Therefore, that West could have requested a loan from the Plan by itself, does not prevent the Plan from being considered a spendthrift trust.
Second, it is unclear whether the ability to take distribution upon termination of employment defeats a plan's status as a spendthrift trust. Some courts hold that such a provision results in the trust not having the safeguards of a "true" spendthrift trust. See In re Sundeen, 62 B.R. 619, 620 (Bankr.C.D.Ill.1986); In re Werner, 31 B.R. 418 (Bankr.D.Minn.1983). Other courts hold that the "ramifications of terminating one's employment are sufficiently self-defeating so as to discourage an abuse of the right to receive a payment." In re Wiggins, 60 B.R. 89, 95 (Bankr.N.D.Ohio 1986). Accord In re Goff, 706 F.2d at 589; In re Matteson, 58 B.R. 909, 911 (Bankr.D.Colo.1986). In the case at bar this consideration is irrelevant as West's employment had been terminated prepetition.
Third, when he filed bankruptcy, West had requested a distribution, but he was not immediately entitled to it and had not received it. The trustee argues that administrative rules for distributions under the Plan should not prevent the asset from coming into the estate. We note, however, a spendthrift provision is effective until distribution is made. Smith v. Mirman, 749 F.2d 181 (4th Cir.1984). Accordingly, we conclude that the trial court correctly held that the Intel Plan satisfies the requirements of a spendthrift trust. As a spendthrift trust, West's interest in the Plan was protected when he filed bankruptcy.
The final question is whether West's interest in the Plan should have come into the estate when it was distributed in June 1986. Bankruptcy Code section 541(a)(5) provides that certain property coming into the debtor's possession within 180 days after filing bankruptcy comes into the bankruptcy estate. The debtor's interest in property excluded under section 541(c)(2) is not listed in section 541(a)(5). The trial court concluded that, by this omission,
2. Exemption as a Pension
Oregon has opted out of the federal exemption scheme. Or.Rev.Stat. section 23.305. Thus, if West's interest in the Plan is to be exempt under Bankruptcy Code section 522, 11 U.S.C. section 522, it must qualify as a "pension" under Or.Rev.Stat. section 23.170. That section provides in relevant part:
The trial court concluded that the Intel Plan qualified as a pension under section 23.170 stating:
The Ninth Circuit Court of Appeals recently addressed this issue in Hebert v. Fliegel, 813 F.2d 999 (9th Cir.1987). There, the court cited with approval the decision of the trial court in the instant case. Id. at 1001 (citing In re West, 64 B.R. at 744). The Hebert court then concluded:
813 F.2d at 1001. In our view, the trial court's analysis of this issue and its conclusion that the Plan constitutes a pension is correct. Accordingly, we AFFIRM.
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