Prisoners with Pensions Pay TheirOwn Way: An Examination of the Michigan State Correctional Facility Reimbursement Act

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139

Prisoners with Pensions Pay Their

Own Way: An Examination of theMichigan State Correctional Facility

Reimbursement Act

Meghan L. Brower

I. INTRODUCTION

The United States has the highest prison population rate in the world,1

housing approximately 1.6 million inmates in 2008.

2

In the past twenty-fiveyears, the rate of incarceration has increased significantly,3 and risingpopulations have amplified the governments monetary burden to provideinmates with basic necessities.4 Annually, the federal and stategovernments spend approximately $22,000 to incarcerate an individual,which accounts for approximately $62 per day.5 Some states havedeveloped reimbursement statutes to offset the rising costs of incarcerationand alleviate the financial burdens imposed on the taxpayer.6

1. ROY WALMSLEY, INTERNATIONAL CENTRE FOR PRISON STUDIES, WORLD PRISON

POPULATION LIST (8th ed. 2009),available at http://www.kcl.ac.uk/depsta/law/research/icps/

downloads/wppl-8th_41.pdf.2. OFFICE OF JUSTICE PROGRAMS, BUREAU OF JUSTICE STATISTICS, CORRECTIONS:

TOTAL CORRECTIONAL POPULATION, available at http://bjs.ojp.usdoj.gov/index.cfm?ty=

tp&tid=11 (last visited Aug. 30, 2010) (State and federal prison authorities had jurisdiction

over 1,610,446 prisoners at midyear 2008: 1,409,166 in state jurisdiction and 201,280 in

federal jurisdiction.).

3. Study: 7.3 Million in U.S. Prison System in 07, CNN, Mar. 2, 2009, available at

http://www.cnn.com/2009/CRIME/03/02/record.prison.population/ (In 1982, 1 in 77 adults

were in the correctional system in one form or another and in 2007 [t]he U.S. correctional

population . . . totaled 7.3 million, or 1 in every 31 adults.).

4. OFFICE OF JUSTICE PROGRAMS, BUREAU OF JUSTICE STATISTICS, CORRECTIONS:

EXPENDITURES/EMPLOYMENT (2001), available at http://bjs.ojp.usdoj.gov/index.cfm?ty=tp

&tid=16.

5. Id.

6. S.P. Conboy, Prison Reimbursement Statutes: The Trend Toward RequiringInmates to Pay Their Own Way, 44 DRAKE L.REV.325,327(1996).


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140 CRIMINAL AND CIVIL CONFINEMENT [Vol. 37:139

Reimbursement statutes require inmates to repay the government for thecosts of their detention7 and typically target prison payroll checks, pre-incarceration assets, and federal entitlements such as social securitybenefits.8 Currently, there is a conflict over the interpretation of

Michigans State Corrections Facility Reimbursement Act (SCFRA), andwhether the State may order a prisoner or his pension fund to direct hispension account assets to his prison account, without violating the anti-alienation provision of the Employee Retirement Income Security Act(ERISA).9 ERISA is a comprehensive statute that regulates and protectspension funds.10 Specifically, the anti-alienation provision prevents thegarnishment of ERISA protected pension plans to ensure a level ofeconomic security for the employee upon retirement.11 To date, the fewcases that have addressed this particular issue have produced conflictingresults.12The federal courts held that Michigans SCFRA violates ERISA,but the Michigan Supreme Court did not.13 In the face of such difficulteconomic times, a state-mandated program requiring inmates to pay fortheir own incarceration is obviously appealing for the State and its citizensand unappealing for the inmates. Regardless of the benefits produced bysuch a statute, empowering the State with the ability to seize heavilyregulated and protected assets, meant to serve as a source of long-termfinancial security, represents a threatening prospect.

This Note will argue that the anti-alienation provision of ERISA shouldbe amended to reduce the interpretational ambiguity created by theDepartment of Treasurys vague definitions of assignment and alienationand to prevent reimbursement statutes, like Michigans SCFRA, frompermitting state access to prisoners pension funds. By adopting statutoryschemes authorizing the state to access an inmates pension by eitherordering the prisoner or pension fund to direct payments to the prisonaccount, states can alleviate some financial burden placed on taxpayersfrom the rising cost of incarceration.14 However, the federal governmenthas adopted numerous statutory frameworks to protect and prevent the

7. Id.

8. Id.at 329.

9. See generally29 U.S.C. 1056(d)(1) (2006); DaimlerChrysler Corp. v. Cox, 447

F.3d 967, 976 (6th Cir. 2006); State Treasurer v. Abbott, 660 N.W.2d 714, 716, 724 (Mich.

2003); State Treasurer v. Sprague, 772 N.W.2d 452, 455 (Mich. Ct. App. 2009).

10. See generally Employee Retirement Income Security Act (ERISA), 29 U.S.C.

1001-1461 (2006).

11. 29 U.S.C. 1056(d)(1).

12. Contra DaimlerChrysler Corp., 447 F.3d at 972-73. See generally Sprague, 772

N.W.2d at 454-55;Abbott, 660 N.W.2d at 720 (finding direction of pension plan paymentsto prison account accessable to SCFRA did not violated ERSIAs anti-alientation provision).

13. SeeSprague, 772 N.W.2d at 452;Abbott, 660 N.W.2d at 714.

14. Conboy, supranote 6, at 327.


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2011] PRISONERS WITH PENSIONS PAY THEIR OWN WAY 141

garnishment of pension funds.15Part II investigates Michigans approach toreimbursement statutes and places emphasis on how the statute implicatespensions. Additionally, Part II examines and explains the relevance ofERISAs anti-alienation provision to the analytical framework employed

by the judiciary. Part III discusses both state and federal courtsinterpretations of the Michigan statute and identifies the legal argumentsand disputes associated with the reimbursement program. Part IV examinesthe major arguments for and against statutes requiring individuals withpensions to pay their own way, identifies the ambiguities existing inERISA, assesses the implications of the pension provision in SCFRA, andsuggests amending ERISA to address ambiguous portions of the statute toprevent pension funds from being transferred to a prisoners institutionalaccount. Finally, Part V provides the authors concluding opinionssuggesting that ERISA be amended to clearly define the terms alienationand assignmentand to prevent judicial overreaching.

II.RELEVANT STATUTES

A.Michigans State Correctional Facility Reimbursement Act

Chapter 800 of the Michigan Compiled Laws defines the parameters ofSCFRA by establishing a procedure to identify assets, setting guidelines fora pre-deprivation hearing, and defining assets eligible for transfer to thestate.16Initially, SCFRA requires prisoners within the States jurisdiction tosubmit financial information divulging their assets to the State,17understanding that, failure to cooperate may be considered for purposes ofa parole determination.18 The financial obligation of the prisoner onlyattaches to certain assets and excludes the homestead of the prisoner up to$50,000.00 in value,19 and [m]oney saved by the prisoner from wagesand bonuses paid [to] the prisoner while he or she was confined to a statecorrectional facility.20

An action for reimbursement must commence while the prisoner ishoused in a state correctional facility; consequently, the State may not seekreimbursement after the prisoner has been discharged and is no longer

15. See, e.g.,29 U.S.C. 1056.

16. MICH.COMP.LAWS ANN.800.401-.406(West 1998 & Supp. 2010).

17. MICH. COMP. LAWS ANN. 800.401a(a), .401b (Assets means property,

tangible or intangible, real or personal belonging to or due a prisoner or former prisoner

from social security, workers compensation, veterans compensation, pension benefits,

previously earned salary or wages, bonuses, annuities, retirement benefits, or from any other

source whatsoever.).18. MICH.COMP.LAWS ANN.800.403a(2).

19. MICH.COMP.LAWS ANN.800.401a(a)(i)-(ii).

20. MICH.COMP.LAWS ANN.800.401a(a)(ii).


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under the jurisdiction of the department [of corrections].21Next, a reportfor each prisoner is sent to the attorney general listing the assets andapproximating costs for detention and care.22 If the attorney generaldetermines that a prisoner has sufficient assets to recover not less than

10% of the estimated cost of care of the prisoner or 10% of the estimatedcost of care of the prisoner for [two] years then he may seekreimbursement for the State.23 However, the attorney general may notexhaust more than 90% of the value of the prisoners assets to cover cost ofcare.24The attorney general mustrequest reimbursement if the assets wouldcover more than 10% of the expenses; however, if the prisoners financialresources would cover lessthan 10%, the attorney general would have thediscretion to institute a reimbursement action.25

To facilitate the reimbursement procedure, the court issues an order toshow cause why the complaint seeking reimbursement should not begranted, and holds a hearing to consider the prisoners legal obligation todependents.26The court then orders any person, corporation, or other legal

entity possessed or having custody of those assets to appropriate and applythe assets or a portion thereof toward reimbursing the state,27 andauthorizes reimbursement in an amount that will not exceed the cost ofdetention in the facility where the prisoner serves his sentence.28Essentially, the cost requested varies depending on the type of facility andthe costs associated with detainment in that facility.29

According to the definition section, pensions are considered assets,30and thus regarded as capital that must be disclosed and inevitably turnedover to the State after the attorney general shows good cause.31ThroughERISA and other federal statutes, the federal government affordssubstantial protection to pension funds and does not permit entities togarnish those funds directly.32 In addition to SCFRA, Michigans

21. MICH.COMP.LAWS ANN.800.404(8).

22. MICH. COMP. LAWS ANN. 800.402. The statue defines cost of care to mean

the cost to the department for providing transportation, room, board, clothing, security,

medical, and other normal living expenses of prisoners, and the cost to the department for

providing college-level classes or programs to prisoners, as determined by the department.

MICH.COMP.LAWS ANN.800.401a(b).

23. MICH.COMP.LAWS ANN.800.403(1)-(2).


25. State Treasurer v. Cuellar, 476 N.W.2d 644, 645 (Mich. Ct. App. 1991).

26. MICH.COMP.LAWS800.404(5).



29. Id.30. MICH.COMP.LAWS ANN.800.401a(a).

31. MICH.COMP.LAWS ANN. 800.403(2).

32. See 29 U.S.C. 1056(d)(1) (2006); Guidry v. Sheet Metal Workers Natl Pension


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Department of Corrections (MDOC) prohibits prisoners from possessingaccounts at financial institutions, so prisoners must keep all of their assetsin their institutional accounts.33Pension payments deposited into personalaccounts do not receive the protections constructed by ERISA and may be

subject to garnishment.34

Using SCFRA, Michigan courts order theprisoner, or his or her pension fund, to deposit the money into theprisoners institutional account or alternatively redirect those funds to theprisoners current institutional address, permitting the State to exercisecontrol over those funds.35The inclusion of pensions by SCFRA provides aframework for the State to ensure that prisoners will pay for detention withthese funds.36While the Statute appears relatively straightforward, it hasbeen hotly contested and controversial due to the conflict between state andfederal law.

B. ERISAs Anti-Alienation Provision

Congress enacted ERISA to protect pension funds from mismanagement

and abuse by both the employer and the employee.37

Pension funds, likesocial security, are meant to provide employees and their family memberswith a source of financial security after retirement.38Past abuse and misuseby both employees and employers necessitated vigorous governmentalregulation and supervision.39 The anti-alienation provision affords anelevated level of protection for these funds by preventing the garnishmentof pension accounts.40 The anti-alienation provision states that [e]achpension plan shall provide that benefits provided under the plan may not beassigned or alienated.41Essentially, this prevents creditors and victims ofcrimes and torts from targeting these funds as a potential source ofcompensation.42

There are very few exceptions that fall outside the scope of the

Fund (Guidry I), 493 U.S. 365, 371-72 (1990); DaimlerChrysler Corp. v. Cox, 447 F.3d

967, 974 (6th Cir. 2006) ([O]nce a pension plan has sent benefit payments to a

beneficiary[,] . . . the attachment of those funds by a creditor does not constitute an

alienation.).

33. DaimlerChrysler Corp., 447 F.3d at 969; see also MICH.DEPT OF CORR., POLICY

DIRECTIVENO. 04.02.105, at 6 (2010) [hereinafter POLICY DIRECTIVENO. 04.02.105].

34. Roberts v. Baugh, 986 F. Supp. 1074, 1077 (E.D. Mich. 1997).

35. SeeMICH.COMP.LAWS ANN.800.401-.406(West 1998 & Supp. 2010).

36. MICH.COMP.LAWS ANN.800.401a(a).

37. Sharon Reece, The Gilded Gates of Pension Protection: Amending the Anti-

Alienation Provision of ERISA Section 206(d), 80 OR.L.REV.379, 380 (2001).

38. Id.at 381 & n.1.

39. Id.at 382-83.40. Id.at 386.

41. 29 U.S.C. 1056(d)(1) (2006).

42. Reece, supranote 37, at 380.


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protections provided by the provision. The exceptions include domesticsupport orders,43loan procurement,44protection in perpetuity,45and breachof trust by a fiduciary.46 In Guidry v. Sheet Metal Workers NationalPension Fund (Guidry I), the Supreme Court reiterated the need for strict

judicial adherence to the limitations of the anti-alienation provision.47

Specifically, the Court declined to make an exception to the provisionwhen an employer attempted to collect restitution from a union officialspension plan after the employee embezzled $275,000 from the union, notthe unions pension plan.48However, the Court indicated that the outcomecould have been different if the defendant had breached any fiduciary dutyto the pension plan.49 Liability only arises under this exception if thefiduciary injures the pension plan and threatens the security of retirement

43. 29 U.S.C. 1056(d)(3)(A). In Cartledge v. Miller, the court determined that

ERISA did not preclude execution of a valid court order of support for the wife and

children who were not third party creditors [because] . . . this result was an obviousextension of ERISAs desire to protect not only the participant but also his or her

dependents from burdening social programs. Reece, supra note 37, at 393-95; see

Cartledge v. Miller, 457 F. Supp. 1146, 1156 (S.D.N.Y. 1978).

44. 29 U.S.C. 1056(d)(2) (2006); Reece, supranote 37, at 389-92; H.R. REP.NO.

93-1280, at 280 (1974) (Conf. Rep.) (Vested benefits may be used as collateral for

reasonable loans from a plan, where the fiduciary requirements of the law are not

violated.).

45. 29 U.S.C. 1056(d)(2) (any voluntary and revocable assignment of not to exceed

10 percent of any benefit payment.); see also Reece, supranote 37, at 391 (arguing that

Congress intended to protect pension funds in perpetuity).

46. 29 U.S.C. 1109(a) (permitting an offset to pension benefits from fiduciaries who

breached a duty to the fund). ERISA provides in relevant part:

(4) Paragraph (1) shall not apply to any offset of a participants benefits providedunder an employee pension benefit plan against an amount that the participant is

ordered or required to pay to the plan if

(A) the order or requirement to pay arises

(i) under a judgment of conviction for a crime involving such plan,

(ii) under a civil judgment (including a consent order or decree) entered by a court

in an action brought in connection with a violation (or alleged violation) of part 4

of this subtitle, or

(iii) pursuant to a settlement agreement between the Secretary and the participant,

or a settlement agreement between the pension Benefit Guaranty Corporation and

the participant, in connection with a violation (or alleged violation) of part 4 of

this subtitle by a fiduciary or any other person.

29 U.S.C. 1056(d)(N)(4).

47. See Guidry v. Sheet Metal Workers Natl Pension Fund (Guidry I), 493 U.S. 365,376 (1990).

48. Id.at 367-68.

49. Id.at 373 (emphasis omitted).


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benefits to others.50 Essentially, Guidry I established the Courtsunwillingness to deviate from the policy decision made by Congress, evenif that decision prevents others from securing relief for the wrongs done tothem, and reiterated that courts should be hesitant to craft equitable

exceptions that are unsupported by the statutory text.51

Ambiguity arises in ERISA because the terms alienationand assignment

are undefined in the statute, and the absence of a clear definition affordsjudges wide latitude in statutory interpretation.52Literature indicates thatgarnishment of pension benefits for reimbursement purposes in the prisoncontext does not fall within the narrowly defined exceptions.53 In fact,ERISA was implemented to prevent garnishment or forfeiture as a result ofemployee misconduct.54 However, the Michigan Statute coupled withdepartmental regulation attempts to circumvent the protections in ERISAby requiring inmates to transfer pension funds to an institutional account.55Clearly, Michigans manipulation of the Statutes equivocal naturecircumscribes the purpose of ERISA, which is to protect pension

dissipation before retirement.

56

Additionally, the level of protectionafforded to disbursed funds is another point of contention, as ERISA doesnot specify whether pension benefits become vulnerable to creditors afterthey vest.57

The policies underlying both pieces of legislation seem to conflict.ERISA attempts to protect employees and their dependents from financialinsolvency, but SCFRA creates insolvency by liquidating inmates sourcesof income, thereby alleviating the taxpayers financial burden andreallocating that burden upon the inmates.58Ultimately, ERISA supersedesthe States authority to tamper with ERISA protected funds; however, theabsence of statutory clarity permits a contradictory interpretation. TheSupreme Court has ruled in favor of ERISA when faced with a conflictinginterest.59The latitude afforded to judicial interpretation could be curtailed

50. Reece, supranote 37, at 399.

51. Guidry I, 493 U.S. at 376.

52. 29 U.S.C. 1056(d) (2006).

53. Reece, supra note 37, at 388-99.

54. Id. at 401.

55. DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 969 (6th Cir. 2006); see also POLICY

DIRECTIVENO. 04.02.105, supra note 33, at 1 (stating that prisoners pension checks will be

credited to the prisoners trust account).

56. See29 U.S.C. 1001(a)-(b).

57. See29 U.S.C. 1056.

58. Reece, supranote 37, at 380. See generallyMICH.COMP.LAWS 800.401-.406

(1979).

59. See Guidry v. Sheet Metal Workers Natl Pension Fund (Guidry I), 493 U.S. 365,

376 (1990); United States v. Smith, 47 F.3d 681, 682 (4th Cir. 1995) (In Guidry I, the

Court was faced with the competing policies of ERISA and the Labor-Management


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by amending the provisions of ERISA to define alienationand assignment.

III.COURT REVIEW OF SCFRAS APPLICATION TO PENSIONS

In the past few years, several court cases at both the state and federal

level addressed the legality of Michigans inclusion of pensions as assetsrequired to be disclosed and ultimately seized for reimbursementpurposes.60Presenting the cases in chronological order provides the bestframework to understand the statutory interpretation and development ofjurisprudence.

A.Roberts v. Baugh

In Baugh, the United States District Court for the Eastern District ofMichigan analyzed the legality of an order requiring the defendantspension plan to direct his pension benefits to his prison address where theywould be deposited into his prison account and used to partially reimbursethe State.61Roberts, the State Treasurer, argued that depositing the pension

funds into Baughs prison account did not constitute an assignment becauseERISA does not protect the funds after they have been deposited.62

The court found this argument unpersuasive for the reasons that follow.First, the prisoner transferred the funds involuntarily into his prison accountin response to a court order.63This is important because the anti-alienationprovision of ERISA contemplates and prohibits both voluntary andinvoluntary transfers.64 Second, the SCFRA provision undermines thepurpose of ERISA, which is to protect an employee from his ownfinancial improvidence in dealing with third parties and to assure that theemployee and his beneficiaries reap the ultimate benefits due uponretirement.65 Additionally, the preemption provision enacted withinERISA supersedes state laws relat[ing] to any employee benefit of

Reporting and Disclosure Act of 1959 (LMRDA), which was designed to prevent the

corruption of union officials.).

60. See,e.g.,DaimlerChrysler Corp., 447 F.3d at 976; Roberts v. Baugh, 986 F. Supp.

1074, 1077 (E.D. Mich. 1997);Abbott, 660 N.W.2d at 721; Sprague, 772 N.W.2d at 453.

61. Baugh, 986 F. Supp. at 1076.

62. Id.at 1077. The court defined assignment as:

The act of transferring to another all or part of ones property interest, or rights. A

transfer or making over to another of the whole of any property, real or personal,

in possession or in action, or of any estate or right therein. It includes transfers of

all kinds of property including negotiable instruments.

Id.(citing BLACKS LAW DICTIONARY109 (5th ed. 1979) (citations omitted)).63. Id.

64. Id.at 1076.

65. Id.


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ERISA66 in order to establish a consistent regulatory framework.67 Thecourt conceded that after pension benefits are relocated to a personalaccount, the protections of ERISA dissolve; however, the involuntarynature of the transfer violated ERISA, which supersedes SCFRA.68

Following this reasoning, the district court concluded that the policiessurrounding the enactment of ERISA prohibited the garnishment of pensionfunds for reimbursement purposes.69

B. State Treasurer v. Abbott

InAbbott, the Michigan Supreme Court reviewed an order issued by thetrial court that required the defendant and the defendants former employerto direct his pension proceeds to his prison address and ordered the wardento divide the residual funds between the defendants spouse and the State.70The question presented for the courts consideration was whetherERISAs prohibition on assignment and alienation of pension benefitssupersedes the SCFRA in this case.71

The court carefully examined the statutory definitions of alienationandassignment provided by the Department of the Treasury because ERISAitself did not supply definitions for those terms.72 Ultimately, the courtdetermined that the definitions contemplated a transfer of the interest toanother person, i.e., a person other than the beneficiary himself.73Therefore, directing the pension payment to a beneficiary at his ownaddress, and depositing [those funds] in his own [prison] account d[id] notassign that payment.74Additionally, the warden and other third parties didnot acquire[] a right or interest enforceable against the plan when thepension proceeds [were] sent to [the] defendant at his current address.75According to the court, the transfer of pension funds to Abbotts prisonaccount did not constitute an assignment or alienation because it did not

66. 29 U.S.C. 1144(a) (2006).

67. Baugh, 986 F. Supp. at 1076.

68. Id.at 1077; see alsoGuidry v. Sheet Metal Workers Natl Pension Fund (Guidry

I), 493 U.S. 365, 376 (1990) (holding that the involuntary transfer of ERISA benefits is

prohibited under the anti-alienation clause).

69. Baugh, 986 F. Supp. at 1078.

70. State Treasurer v. Abbott, 660 N.W.2d 714, 717 (Mich. 2003) (allocating 33% of

the remainder to the state and 67% to the defendants spouse). Additionally, documentation

submitted by the state indicated that the prisoners detention and care costs would amount to

approximately $479,490 because he was not eligible for parole for nineteen years.Id.at 716

n.2.

71. Id.at 718.

72. Id.73. Id.

74. Id.at 718-19.

75. Id.at 719.


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convey any legal right, interest, or title to another person.76The majoritycountered the district courts interpretation in Baugh and asserted, [t]heinvoluntary nature of a deposit [did] not establish an assignment unless aperson other than the beneficiary acquires a right or interest enforceable

against the plan.77

However, the court conceded that an assignment wouldoccur if the court were to order the pension fund to direct payments toanyone other than the defendant.78

The second issue considered by the court contemplates whether thedisbursement of the pension funds after they [were] deposited in thedefendants account contravenes ERISA.79 Ultimately, the courtconcluded that the State may garnish pension payments received by thebeneficiary because ERISA does not expressly prohibit the attachment orseizure of benefits after they are obtained and deposited into a personalaccount.80Additionally, the court looked to the decisions of other circuitsas persuasive authority for reinforcing its own interpretation.81

The dissent identified several issues with the majoritys reasoning and

holding.

82

First, according to the dissent, the majority incorrectlyinterpreted and applied the Department of Treasurys definition ofassignment.83 Second, the dissent claimed that the persuasive authorityused to reinforce the majoritys interpretation was inapplicable because inthose statutory schemes no one was made a receiver84of the defendantsbenefits before they were deposited into the defendants accounts and thecourts did not order the defendants benefit plans to deliver the defendantsfunds into specified accounts.85Ultimately, the dissent would have held

76. Id.

77. Id. at 719-20; see also Roberts v. Baugh, 986 F. Supp. 1074, 1077 (E.D. Mich.

1997).78. Abbott, 660 N.W.2d at 720.

79. Id. at 721.

80. Id. at 721-22, 724 (finding support for this inference in provisions of the Social

Security Act and the Veterans Benefits Act which expressly prohibit the attachment of

payments before or after receipt by the beneficiary.). See generallyGuidry v. Sheet Metal

Workers Local No. 9 (Guidry II), 10 F.3d 700 (10th Cir. 1993).

81. Abbott, 660 N.W.2d at 722-23; see,e.g., Wright v. Riveland, 219 F.3d 905, 921

(9th Cir. 2000); Trucking Emp. of N. Jersey Welfare Fund, Inc. v. Colville, 16 F.3d 52, 56

(3d Cir. 1994). But see, e.g., United States v. Smith, 47 F.3d 681, 683 (4th Cir. 1995)

(holding that received pension payments were not subject to reimbursement).

82. Abbott, 660 N.W.2d at 725-29 (Kelly, J., dissenting).

83. Id.at 725.

84. Id. (defining receiver as a disinterested person appointed by a court, or by a

corporation or other person, for the protection or collection of property that is the subject of

diverse claims); Id. at 720 n.10 (majority opinion) (quoting BLACKS LAW DICTIONARY

1275 (7th ed. 1999)).

85. Id.at 726 (Kelly, J., dissenting).


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that SCFRA violated the anti-alienation provision of ERISA.86

C.DaimlerChrysler Corp. v. Cox

In this case, the Sixth Circuit Court of Appeals examined whether

Michigans . . . SCRFA, in conjunction with other Michigan laws andwith directives from the MDOC, runs afoul of the federal . . . ERISA incases where prisoners refuse to inform their pension plans of a change ofaddress.87 The defendants included four prisoners, receiving pensionpayments from their employer, who were informed by the prison warden todirect those funds to their prison account.88One of the prisoners complied,but the others refused.89Additionally, the employer refused to redirect thepayments without the prisoners authorization.90

The Sixth Circuit held for the defendants after concluding that SCFRAviolates the anti-alienation provision of ERISA and upheld the districtcourts invalidation of orders and notices only to the extent thatDaimlerChrysler is required to send or make payments of [p]ension [p]lan

benefits to any address or account other than as designated . . . under the[p]ension [p]lan terms.91Although the State did not garnish funds fromthe pension until after they were deposited into the institutional account,SCFRA orders and notices were attached to the pensions funds before theywere sent.92Permitting access to the plan by virtue of the wardens noticewould . . . create[] a legal obligation enforceable against the [p]ension[p]lan and would constitute a violation of ERISA.93 The fact that thewarden could not access the funds until after they were deposited into theprisoners account was irrelevant because the State already effectivelyowned 90% of the payments even before they were received.94Additionally, even though the institutional accounts bore the prisonersname, Michigan law controlled access and use of the funds deposited into

the account.

95

The DaimlerChrysler court did not intend to completely bar the Statefrom accessing a prisoners pension funds.96Instead, it instructed the State

86. Id.at 724.

87. DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 968 (6th Cir. 2006).

88. Id.at 969-70.

89. Id. at 970.

90. Id.

91. Id. at 968-69 (quoting Amended Declaratory Judgment, DaimlerChrysler Corp. v.

Cox, No. 04-73291 (E.D. Mich. May 18, 2005)).

92. Id.at 974-75.

93. Id.at 975.94. Id.at 976.

95. Id.

96. Id.


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to wait for the [p]ension [p]lan to send the benefit payments at thedirection of the prisoner before the State encumber[ed] those paymentsand then plac[ed] a constructive trust on those already-paid funds.97Otherwise, the state would violate ERISAs anti-alienation provision.98

D. State Treasurer v. Sprague

In Sprague, the Michigan Court of Appeals upheld the lower courtsdetermination permitting the State to employ SCFRA to seekreimbursement from Spragues pension benefits and:

[R]equired Sprague to notify his former employer, Dow Chemical

Company, that his pension benefits should be mailed to his prison

address rather than deposited directly into his account at defendant Dow

Chemical Employees Credit Union . . . and . . . required the credit union

to transfer assets held in the pension account to the State

Treasurer . . . .99

Additionally, the trial court mandated that the credit union transfer 90% ofthe funds held in the pension account to the State Treasurer, disburse theresidual funds to Sprague, and terminate the account.100The court held thatthe provisions of SCFRA did not violate ERISAs anti-alienationprovision.101

The Spraguecourt identified the major issues addressed by the MichiganSupreme Court and the Sixth Circuit.102First, the court determined that theSixth Circuit did not address whether the state could [expressly] order aprisoner to direct a pension plan to send the prisoners assets to a prisonaccount.103 Concluding that the federal courts silence on the issuerevealed an absence of conflict, the Sprague court determined that theAbbott courts holding controlled the issues resolution, and upheld thetrial courts order . . . requiring Sprague to direct Dow Chemical to send his

pension payments to his prison account, rather than depositing them intohis pension account . . . .104Second, the court identified a conflict betweenAbbott andDaimlerChrysler on the question of whether a state court mayorder a pension plan to send pension payments to a prison account, rather

97. Id.

98. Id.

99. State Treasurer v. Sprague, 772 N.W.2d 452, 453 (Mich. Ct. App. 2009).

100. Id.

101. Id.

102. See id.at 455.

103. Id.; see also DaimlerChrysler Corp., 447 F.3d at 976 (6th Cir. 2009) (We are not

passing, however, on the question of whether state officials can compel prisoners to send

their address changes to thePension Plan because that issue is not before us.).

104. Sprague, 772 N.W.2d at 455.


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than depositing them into a prisoners pension account, without thedirection of the prisoner.105 The Sprague court declined to follow thefederal courts interpretation because the Michigan Supreme Courtsholding and reasoning in Abbott controlled their analysis.106The Sprague

court indicated that in order to set asideAbbott, the United States SupremeCourt must overrule or modify case law if it becomes obsolete, and until[the Supreme] Court takes such action, the Court of Appeals and all lowercourts are bound by that authority.107

This case represents the culmination of jurisprudence responding toSCFRAs pension provision. The state and federal courts have clearlyreached an impasse concerning the interpretation of ERISAs anti-alienation provision. A possible solution is an amendment to ERISAclarifying definitional ambiguity and prohibiting wages from beinggarnished from pension funds received by the beneficiary.

IV. RESOLVING THE DISPUTE

ERISAs anti-alienation provision reflects a policy choice made byCongress to safeguard a stream of income from pensioners (and theirdependents, who may be, and perhaps, usually are, blameless), even if thatdecision prevents others from securing relief for the wrongs done tothem.108 Courts have repeatedly refused to acknowledge any impliedexceptions to the anti-alienation provision and have insisted on strictlyenforcing its terms.109 There is no indication that prisoners, by virtue of

105. Id. Here, the Sprague court recognized that it is more practical to order the

pension plan and not the prisoner to direct pension payments to the inmates institutional

account, noting:

While a prisoner [may] ignore such an order, the only ramifications would bepossible contempt proceedings or negativeimplications on the parole process . . .

in contrast, once a pension plan remits payment of a prisoners pension assets into

a prison account pursuant to a court order, they become available for SCFRA

reimbursement.

Id.at 455 n.2.

106. Id. at 455. See generally Abela v. Gen. Motors Corp., 677 N.W.2d 325, 327

(Mich. 2004) (citation omitted) (Although state courts are bound by the decisions of the

United States Supreme Court construing federal law, there is no similar obligation with

respect to decisions of the lower federal courts.); Walters v. Cox, 342 F. Supp. 2d 670, 675

(E.D. Mich. 2004) (Although sympathetic to the injustice handed Plaintiff by the Eaton

County Circuit Court, this Court is without a basis to overturn the state courts decision as

such judicial review is barred by theRooker-Feldman doctrine.).

107. Boyd v. W.G. Wade Shows, 505 N.W.2d 544, 547 (Mich. 1993).

108. Patterson v. Shumate, 504 U.S. 753, 765 (1992) (quoting Guidry v. Sheet Metal

Workers Natl Pension Fund (Guidry I), 493 U.S. 365, 376 (1990)) (internal quotation

marks omitted).

109. DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 973 (6th Cir. 2006).


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their status as inmates, fall outside the protective sphere that ERISA hasestablished. In fact, the policies motivating the enactment of ERISApromote the protection of these assets even in the presence of wrongdoingby the beneficiary.110 On the other hand, the underlying concept

surrounding the creation of a prisoner reimbursement statute also providesan appealing solution in difficult economic times. Producing a revenuestream from the inmate population attempts to offset the burden placed onthe taxpayer, and Michigans statute has produced significant contributionssince its inception.111Additionally, proponents of reimbursement statutesargue that paying ones debt to society should embody two connotations:(1) incarceration[;] and (2) acceptance of the resulting fiscal burdens.112

Inmates with pensions present a unique problem because, while inprison, the taxpayers shoulder, albeit indirectly, the costs associated withmaintaining the facilities and their inhabitants but inmates continue tocollect money from their heavily protected pension.113However, utilizingan inmates pension benefits undermines the purpose of ERISA, as SCFRA

will more than likely leave an individual impoverished.

114

Regardless, theprotections of ERISA apply to both the employee and his dependents,shielding both from financial ruin.115Inmates should be afforded the sameprotections allotted to other pensioners because the statute and thejurisprudence do not indicate that prisoners fall into any of the mandatedexceptions.116 Additionally, courts have repeatedly refused to createimplied exceptions to the anti-alienation provision, particularly whenconfronted with instances of wrongdoing by the pensioner.117With this inmind, a prison sentence should not alter the protections afforded to aninmates pension. ERISA provides retirees and their dependents with asource of financial security.118The attachment of pension funds by the state

110. SeePatterson v. Shumate, 504 U.S. 753, 765 (1992).

111. Daniel M. Levy, Tense Times: The Past, Present, and Future of Prisoner

Reimbursement, 77MICH. BUS.L.J. 190, 190 (1998). In fiscal year 1996-1997, Michigan

collected approximately $786,000 from inmates because of SCFRAs reimbursement

authorization. Each year, the collection rate has increased significantly. Id.

112. Conboy, supra note 6, at 349.

113. Id.

114. See Reece, supranote 37, at 384 (We do not want elderly people living in the

street or entire generations of retirees forced to depend on social programs that would be

strained beyond capacity.).

115. Guidry v. Sheet Metal Workers Natl Pension Fund (Guidry I), 493 U.S. 365, 376

(1990) (refusing to permit the offset of the individuals pension because congressional intent

suggested that the anti-alienation provision was meant to protect both the beneficiary and

his dependents) (emphasis added); see also Reece, supranote 37, at 396.116. Reece, supranote 37, at 392-99.

117. Id.at 403.

118. See29 U.S.C. 1056 (2006).


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should be prohibited in order to reinforce the policies underlying ERISAand to protect inmates and their dependents from insolvency.

The courts opinions diverge primarily because ERISA does not definewhat constitutes an assignment and alienation according to the

provision.119

The courts in the controlling cases both turn to theDepartment of the Treasurys regulations to clarify the definition, whichdefines the terms assignment and alienation as including: [A]ny direct orindirect arrangement (whether revocable or irrevocable) whereby a partyacquires from a participant or beneficiary a right or interest enforceableagainst the plan, or to, all or any part of a plan benefit payment which is, ormay become, payable to the participant or beneficiary.120Although courtsagree about the source of the proper definition, the judiciary has thediscretion to construe the scope of the terms liberally in the absence ofterms defined specifically for the legislation.121As a result, a court has freereign to reasonably interpret the provision in a manner that achieves themost favorable ends.122

After identifying a definitional reference point, the controllingauthorities bifurcate when applying the statute to each individual case.123The DaimlerChrysler court considered the Department of the Treasurysregulation, precedent, and the policies underlying ERISAs ratification.124After examining the legislative history and other persuasive authorities, theSixth Circuit concluded that the compulsory nature of the transfer, theabsence of prisoners control over the funds deposited into theirinstitutional accounts, and the States assertion of ownership over theproceeds of the funds all suggested, even if indirectly, that an assignmentof the funds had taken place.125 The court similarly found that theappropriation of these funds did not align with the policies promoted byERISA.126Preventing financial insolvency for both the beneficiary and thedependents is one of ERISAs primary goals, and strict adherence to theanti-alienation provision reinforces that objective.127The stigma attached

119. Seeid. 1056(d).

120. Income Tax Rule, 26 C.F.R. 1.401(a)-13(c)(1)(ii) (2010); see also

DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 973 (6th Cir. 2006); State Treasurer v. Abbott,

660 N.W.2d 714, 718 (Mich. 2003).

121. See generallyAbbott, 660 N.W.2d 714 (rejecting the lower courts interpretation

of terms and, in the absence of a statutory definition, using federal regulations to interpret

the terms).

122. See, e.g., id. at 718-23; State Treasurer v. Sprague, 772 N.W.2d 452, 455-56

(Mich. Ct. App. 2009).

123. SeeDaimlerChrysler Corp., 447 F.3d at 975;Abbott, 660 N.W.2d at 719.

124. DaimlerChrysler Corp., 447 F.3d at 973-74.125. See id.at 976.

126. Id.at 973.

127. Id.; seePatterson v. Shumate, 504 U.S. 753, 760 (1992). See generallyGuidry v.


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to institutionalized individuals makes prisoners more vulnerable to this typeof legislation because their plight induces little or no sympathy. However,federal courts understood there may be a natural distaste for the result[they] reach[ed] . . . .128Consequently, they would not participate in the

diminution of these safeguards in circumstances which might seemharmless enough in particular circumstances but which, in the aggregate,might invite creditors to believe, that ERISA funds are not, after all,inviolate.129 Essentially, the courts analysis suggests that protectingemployees from squandering their pension benefits before retirementoutweighs the states interest in collecting restitution for incarceration.

To support its interpretation, the Michigan Supreme Court used theDepartment of the Treasurys regulation and also considered the definitionsprovided by Blacks Law Dictionary,130 American Jurisprudence,131 theAmerican Law Institute, and the Restatement Second of Contracts.132Ultimately, the court concluded that an assignment or alienation wouldhave occurred only when the property interest . . . has been transferred to

another person.

133

Because Abbotts pension funds were transferred fromhis pension account to another account bearing hisname, the court orderunder SCFRA did not constitute a transfer.134 In fact, the transfer wouldonly implicate ERISA if a person other than the beneficiary received legaltitle or an interest in the funds.135 This analysis strictly adheres to thedefinitions of assignment and alienationwithout considering the policiesinfluencing ERISAs enactment or the legislative history.136

Sheet Metal Workers Natl Pension Fund (Guidry I), 493 U.S. 365, 365 (1990).

128. Guidry I, 493 U.S. at 377.

129. United States v. Smith, 47 F.3d 681, 684 (4th Cir. 1995).

130. State Treasurer v. Abbott, 660 N.W.2d 714, 719 n.8 (Mich. 2003) (looking toBlacks Law Dictionary definition of assignment: [T]he act of transferring to another all

or part of ones property, interest, or rights. A transfer or making over to another of the

whole of any property, real or personal, in possession or in action, or of any estate or right

therein. It includes transfers of all kinds of property, including negotiable instruments).

131. Id.(looking to American Jurisprudences definition of assignment: A transfer or

setting over of property, or some right or interest therein, from one person to another, and

unless in some way qualified, it is properly the transfer of ones whole interest in an estate,

or chattel, or other thing. It is the act by which one person transfers to another, or causes to

vest in another, his right of property or interest therein).

132. Id. (examining ALIs definition as [a] manifestation to another person by the

owner of the right indicating his intention to transfer, without further act or manifestation of

intention, the right to such person or to a third person.); RESTATEMENT SECOND OF

CONTRACTS 149(1) (1981).

133. Abbott, 660 N.W.2d at 719.134. Id.

135. Id.

136. Id. at 719 n.8.


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The disagreement evident at this stage of the analysis supports the needfor congressional clarification. In the past, Congress has been responsive tojudicial activism when appropriate circumstances facilitated the need forreexamination and codification;137 however, in the absence of

congressional validation, courts should continue to [insist] that pensionplans are sacrosanct.138 Prohibiting Michigans access to prisonerspension funds would reinforce this policy. While both courts offerreasonable interpretations of the terminology, the existence of theconflicting analyses and applications necessitate a decisive resolution.There are a few alternatives to resolving the interpretational dispute.

First, Congress could clearly define the terms alienationand assignmentin the anti-alienation provision. The current definition leaves room forbroad interpretation and precipitates the current conflict.139 The SixthCircuit recognizes and promotes the policy behind ERISA, while theMichigan Supreme Court favors the policy supporting SCFRA.140Congress should amend the statute to clarify the meaning of those terms

and settle the judicial dispute because, in the absence of a clear definition,states will not feel compelled to afford the protections of ERISA toinmates. Prisoners represent a vulnerable population that is usually notafforded the same rights and privileges as other groups. Michigan shoulddiscontinue reimbursement policies targeting pensions in the absence of acongressional mandate permitting garnishment.

Second, Congress could prohibit the garnishment of pension fundsbefore and after the beneficiary receives them. For example, the SocialSecurity Act specifically provides that none of the moneys paid or payableor rights existing under this subchapter shall be subject to execution, levy,attachment, garnishment, or other legal process, or to the operation of anybankruptcy or insolvency law.141 Similarly, the Veterans Benefits Actprohibits the attachment of benefits either before or after receipt by thebeneficiary.142 Both of these statutes contain language specifying theextent of the elevated protections surrounding those funds.143The absenceof explicit language in ERISAs regulations permits courts to infer thatCongress did intend for ERISAs protections to envelope funds received by

137. Reece, supranote 37, at 393, 398-405.

138. Id. at 380.

139. See generally DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 973-76 (6th Cir.

2006); State Treasurer v. Abbott, 660 N.W.2d 714, 718-19 (Mich. 2003).

140. See generallyDaimlerChrysler Corp., 447 F.3d at 974-76;Abbott, 660 N.W.2d at

722-23.141. Social Security Act, 42 U.S.C. 407(a) (2006).

142. Veterans Benefits Act, 38 U.S.C. 5301(a)(1) (2006).

143. See42 U.S.C. 407(a); 38 U.S.C. 5301(a).


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the beneficiary.144 Accordingly, after funds are withdrawn from theaccount they may be garnished.145 Michigans SCFRA circumventsERISAs protections by requiring inmates to transfer pension funds to theirstate-controlled accounts and forcing them to forfeit their retirement

funds.146

Permitting a loophole in the law undermines ERISAs purpose,but adding explicit language to the provision would curtail theimplementation of reimbursement statutes that target pension funds.

The Fourth Circuit in United States v. Smith suggested that ERISA fundsshould be protected before and after they are received.147Here, the courtdeclined to adopt the position employed by other circuits148 when itdecided that a restitution order would not be upheld if it deducted fromSmiths pension benefits.149 The majority distinguished between fundsdisbursed from an ERISA plan before an employee has retired and suchfunds paid as an annuity for retirement purposes.150The court recognizedthat when individuals decide to draw funds from their pension prior toretirement, the protections afforded by ERISA become obsolete.151

However, ERISA prevents assignment or alienation when the funds aredistributed as income during retirement years.152 This interpretationsupports the policy objectives underlying the provision that have beenreinforced repeatedly by the judiciary.153

ERISAs and SCFRAs policy objectives conflict when Michiganapplies the statute to pension funds. To resolve this dispute, Congressshould clarify the definitions of assignmentand alienationto avoid varyingjudicial interpretations. Alternatively, Congress should prohibit thegarnishment of pension funds before or after they are received. Both ofthese alternatives will reinforce the protections and policies of ERISA,which were circumvented by Michigans reimbursement program.

144. Abbott, 660 N.W.2d at 722.

145. Id.at 719.

146. DaimlerChyrsler Corp. v. Cox, 447 F.3d 967, 976 (6th Cir. 2006).

147. United States v. Smith, 47 F.3d 681, 684 (4th Cir. 1995).

148. Trucking Emp. of N. Jersey v. Colville, 16 F.3d 52, 55 (3d Cir. 1994) (finding that

ERISAs anti-alienation provision does not protect funds distributed to a beneficiary);

Guidry v. Sheet Metal Workers Natl Pension Fund (Guidry II), 10 F.3d 700, 716 (10th Cir.

1993) (ERISA provides no protection to funds paid to, and received by, the plan

participant.).

149. Smith, 47 F.3d at 684.

150. Id.at 683.151. Id.

152. Id.

153. See generallyGuidry I, 493 U.S. 365, 376 (1990); Smith, 47 F.3d at 682.


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V.CONCLUSION

Reimbursement statutes seem like an obvious solution to anuncontrollable problem, but the laws that states implement to ensurereimbursement must comport with public policy and federal law. The

aversion associated with paying a significant portion of the inmates livingexpenses154 is understandable and reasonable. However, there should belimitations that consider the broader implications of including pensionbenefits as income accessible to the state for reimbursement. Congressbalanced those interests when it drafted the anti-alienation provision ofERISA, and the Supreme Court reinforced those policies whenever it wasconfronted with cases that attempted to create exceptions to the rule.155

Michigans interpretation of ERISAs application to SCFRA represents aconfrontation between conflicting interests that should be resolved. Theambiguity of the anti-alienation provision permits varying interpretationswith conflicting results. Congress can ameliorate this issue by clarifying itsintent and specifying the level of protection that should be afforded to

pension plan funds. Although the statute provides extensive safeguardsshielding pension funds from employee and employer abuse, it should alsoshield the employee from reimbursement statutes that undermine ERISAsfoundational objectives. Ultimately, an inmates incarceration should notpreclude the inmates dependents from receiving the full benefit of his orher retirement plan.

154. Conboy, supra note 6, at 349.

155. 29 U.S.C. 1056(d) (2006); seeGuidry II, 493 U.S. at 376 (Nor do we think it

appropriate to approve any generalized equitable exceptioneither for employee

malfeasance or for criminal misconductto ERISAs prohibition on the assignment or

alienation of pension benefits.).

Documents

Prisoners with Pensions Pay TheirOwn Way: An Examination of the Michigan State Correctional Facility Reimbursement Act