Prisoners with Pensions Pay Their Own Way: An Examination of the Michigan 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-five years, the rate of incarceration has increased significantly,3 and rising populations have amplified the governments monetary burden to provide inmates with basic necessities.4 Annually, the federal and state governments spend approximately $22,000 to incarcerate an individual, which accounts for approximately $62 per day.5 Some states have developed reimbursement statutes to offset the rising costs of incarceration and 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 Requiring Inmates to Pay Their Own Way, 44 DRAKE L. REV. 325, 327 (1996).

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Reimbursement statutes require inmates to repay the government for the costs of their detention7 and typically target prison payroll checks, preincarceration assets, and federal entitlements such as social security benefits.8 Currently, there is a conflict over the interpretation of Michigans State Corrections Facility Reimbursement Act (SCFRA), and whether the State may order a prisoner or his pension fund to direct his pension account assets to his prison account, without violating the antialienation provision of the Employee Retirement Income Security Act (ERISA).9 ERISA is a comprehensive statute that regulates and protects pension funds.10 Specifically, the anti-alienation provision prevents the garnishment of ERISA protected pension plans to ensure a level of economic security for the employee upon retirement.11 To date, the few cases that have addressed this particular issue have produced conflicting results.12 The federal courts held that Michigans SCFRA violates ERISA, but the Michigan Supreme Court did not.13 In the face of such difficult economic times, a state-mandated program requiring inmates to pay for their own incarceration is obviously appealing for the State and its citizens and unappealing for the inmates. Regardless of the benefits produced by such a statute, empowering the State with the ability to seize heavily regulated and protected assets, meant to serve as a source of long-term financial security, represents a threatening prospect. This Note will argue that the anti-alienation provision of ERISA should be amended to reduce the interpretational ambiguity created by the Department of Treasurys vague definitions of assignment and alienation and to prevent reimbursement statutes, like Michigans SCFRA, from permitting state access to prisoners pension funds. By adopting statutory schemes authorizing the state to access an inmates pension by either ordering the prisoner or pension fund to direct payments to the prison account, states can alleviate some financial burden placed on taxpayers from the rising cost of incarceration.14 However, the federal government has adopted numerous statutory frameworks to protect and prevent the
Id. Id. at 329. See generally 29 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 payments to prison account accessable to SCFRA did not violated ERSIAs anti-alientation provision). 13. See Sprague, 772 N.W.2d at 452; Abbott, 660 N.W.2d at 714. 14. Conboy, supra note 6, at 327.
7. 8. 9.

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garnishment of pension funds.15 Part II investigates Michigans approach to reimbursement statutes and places emphasis on how the statute implicates pensions. Additionally, Part II examines and explains the relevance of ERISAs anti-alienation provision to the analytical framework employed by the judiciary. Part III discusses both state and federal courts interpretations of the Michigan statute and identifies the legal arguments and disputes associated with the reimbursement program. Part IV examines the major arguments for and against statutes requiring individuals with pensions to pay their own way, identifies the ambiguities existing in ERISA, assesses the implications of the pension provision in SCFRA, and suggests amending ERISA to address ambiguous portions of the statute to prevent pension funds from being transferred to a prisoners institutional account. Finally, Part V provides the authors concluding opinions suggesting that ERISA be amended to clearly define the terms alienation and assignment and to prevent judicial overreaching. II. RELEVANT STATUTES A. Michigans State Correctional Facility Reimbursement Act Chapter 800 of the Michigan Compiled Laws defines the parameters of SCFRA by establishing a procedure to identify assets, setting guidelines for a pre-deprivation hearing, and defining assets eligible for transfer to the state.16 Initially, SCFRA requires prisoners within the States jurisdiction to submit financial information divulging their assets to the State,17 understanding that, failure to cooperate may be considered for purposes of a parole determination.18 The financial obligation of the prisoner only attaches 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 wages and bonuses paid [to] the prisoner while he or she was confined to a state correctional facility.20 An action for reimbursement must commence while the prisoner is housed in a state correctional facility; consequently, the State may not seek reimbursement after the prisoner has been discharged and is no longer

See, e.g., 29 U.S.C. 1056. MICH. COMP. LAWS ANN. 800.401-.406 (West 1998 & Supp. 2010). 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).

15. 16. 17.

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under the jurisdiction of the department [of corrections].21 Next, a report for each prisoner is sent to the attorney general listing the assets and approximating costs for detention and care.22 If the attorney general determines 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 estimated cost of care of the prisoner for [two] years then he may seek reimbursement for the State.23 However, the attorney general may not exhaust more than 90% of the value of the prisoners assets to cover cost of care.24 The attorney general must request reimbursement if the assets would cover more than 10% of the expenses; however, if the prisoners financial resources would cover less than 10%, the attorney general would have the discretion to institute a reimbursement action.25 To facilitate the reimbursement procedure, the court issues an order to show cause why the complaint seeking reimbursement should not be granted, and holds a hearing to consider the prisoners legal obligation to dependents.26 The court then orders any person, corporation, or other legal entity possessed or having custody of those assets to appropriate and apply the assets or a portion thereof toward reimbursing the state,27 and authorizes reimbursement in an amount that will not exceed the cost of detention in the facility where the prisoner serves his sentence.28 Essentially, the cost requested varies depending on the type of facility and the costs associated with detainment in that facility.29 According to the definition section, pensions are considered assets,30 and thus regarded as capital that must be disclosed and inevitably turned over to the State after the attorney general shows good cause.31 Through ERISA and other federal statutes, the federal government affords substantial protection to pension funds and does not permit entities to garnish those funds directly.32 In addition to SCFRA, Michigans
MICH. COMP. LAWS ANN. 800.404(8). 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). 24. MICH. COMP. LAWS ANN. 800.403(3). 25. State Treasurer v. Cuellar, 476 N.W.2d 644, 645 (Mich. Ct. App. 1991). 26. MICH. COMP. LAWS 800.404(5). 27. MICH. COMP. LAWS ANN. 800.404(3). 28. MICH. COMP. LAWS ANN. 800.404(4). 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
21. 22.

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Department of Corrections (MDOC) prohibits prisoners from possessing accounts at financial institutions, so prisoners must keep all of their assets in their institutional accounts.33 Pension payments deposited into personal accounts do not receive the protections constructed by ERISA and may be subject to garnishment.34 Using SCFRA, Michigan courts order the prisoner, or his or her pension fund, to deposit the money into the prisoners institutional account or alternatively redirect those funds to the prisoners current institutional address, permitting the State to exercise control over those funds.35 The inclusion of pensions by SCFRA provides a framework for the State to ensure that prisoners will pay for detention with these funds.36 While the Statute appears relatively straightforward, it has been hotly contested and controversial due to the conflict between state and federal 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, like social security, are meant to provide employees and their family members with a source of financial security after retirement.38 Past abuse and misuse by both employees and employers necessitated vigorous governmental regulation and supervision.39 The anti-alienation provision affords an elevated level of protection for these funds by preventing the garnishment of pension accounts.40 The anti-alienation provision states that [e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.41 Essentially, this prevents creditors and victims of crimes and torts from targeting these funds as a potential source of compensation.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 DIRECTIVE NO. 04.02.105, at 6 (2010) [hereinafter POLICY DIRECTIVE NO. 04.02.105]. 34. Roberts v. Baugh, 986 F. Supp. 1074, 1077 (E.D. Mich. 1997). 35. See MICH. 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 AntiAlienation 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, supra note 37, at 380.

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protections provided by the provision. The exceptions include domestic support orders,43 loan procurement,44 protection in perpetuity,45 and breach of trust by a fiduciary.46 In Guidry v. Sheet Metal Workers National Pension 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 provision when an employer attempted to collect restitution from a union officials pension plan after the employee embezzled $275,000 from the union, not the unions pension plan.48 However, the Court indicated that the outcome could have been different if the defendant had breached any fiduciary duty to the pension plan.49 Liability only arises under this exception if the fiduciary 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 obvious extension 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, supra note 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, supra note 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 provided under 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 Courts unwillingness to deviate from the policy decision made by Congress, even if that decision prevents others from securing relief for the wrongs done to them, 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 alienation and assignment are undefined in the statute, and the absence of a clear definition affords judges wide latitude in statutory interpretation.52 Literature indicates that garnishment of pension benefits for reimbursement purposes in the prison context does not fall within the narrowly defined exceptions.53 In fact, ERISA was implemented to prevent garnishment or forfeiture as a result of employee misconduct.54 However, the Michigan Statute coupled with departmental regulation attempts to circumvent the protections in ERISA by requiring inmates to transfer pension funds to an institutional account.55 Clearly, Michigans manipulation of the Statutes equivocal nature circumscribes the purpose of ERISA, which is to protect pension dissipation before retirement.56 Additionally, the level of protection afforded to disbursed funds is another point of contention, as ERISA does not specify whether pension benefits become vulnerable to creditors after they vest.57 The policies underlying both pieces of legislation seem to conflict. ERISA attempts to protect employees and their dependents from financial insolvency, but SCFRA creates insolvency by liquidating inmates sources of income, thereby alleviating the taxpayers financial burden and reallocating that burden upon the inmates.58 Ultimately, ERISA supersedes the States authority to tamper with ERISA protected funds; however, the absence of statutory clarity permits a contradictory interpretation. The Supreme Court has ruled in favor of ERISA when faced with a conflicting interest.59 The latitude afforded to judicial interpretation could be curtailed
Reece, supra note 37, at 399. Guidry I, 493 U.S. at 376. 29 U.S.C. 1056(d) (2006). Reece, supra note 37, at 388-99. Id. at 401. DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 969 (6th Cir. 2006); see also POLICY DIRECTIVE NO. 04.02.105, supra note 33, at 1 (stating that prisoners pension checks will be credited to the prisoners trust account). 56. See 29 U.S.C. 1001(a)-(b). 57. See 29 U.S.C. 1056. 58. Reece, supra note 37, at 380. See generally MICH. 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
50. 51. 52. 53. 54. 55.

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by amending the provisions of ERISA to define alienation and 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 assets required to be disclosed and ultimately seized for reimbursement purposes.60 Presenting the cases in chronological order provides the best framework to understand the statutory interpretation and development of jurisprudence. A. Roberts v. Baugh In Baugh, the United States District Court for the Eastern District of Michigan analyzed the legality of an order requiring the defendants pension plan to direct his pension benefits to his prison address where they would be deposited into his prison account and used to partially reimburse the State.61 Roberts, the State Treasurer, argued that depositing the pension funds into Baughs prison account did not constitute an assignment because ERISA 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 account in response to a court order.63 This is important because the anti-alienation provision of ERISA contemplates and prohibits both voluntary and involuntary transfers.64 Second, the SCFRA provision undermines the purpose of ERISA, which is to protect an employee from his own financial improvidence in dealing with third parties and to assure that the employee and his beneficiaries reap the ultimate benefits due upon retirement.65 Additionally, the preemption provision enacted within ERISA 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 DICTIONARY 109 (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 The court conceded that after pension benefits are relocated to a personal account, the protections of ERISA dissolve; however, the involuntary nature of the transfer violated ERISA, which supersedes SCFRA.68 Following this reasoning, the district court concluded that the policies surrounding the enactment of ERISA prohibited the garnishment of pension funds for reimbursement purposes.69 B. State Treasurer v. Abbott In Abbott, the Michigan Supreme Court reviewed an order issued by the trial court that required the defendant and the defendants former employer to direct his pension proceeds to his prison address and ordered the warden to divide the residual funds between the defendants spouse and the State.70 The question presented for the courts consideration was whether ERISAs prohibition on assignment and alienation of pension benefits supersedes the SCFRA in this case.71 The court carefully examined the statutory definitions of alienation and assignment provided by the Department of the Treasury because ERISA itself did not supply definitions for those terms.72 Ultimately, the court determined that the definitions contemplated a transfer of the interest to another person, i.e., a person other than the beneficiary himself.73 Therefore, directing the pension payment to a beneficiary at his own address, and depositing [those funds] in his own [prison] account d[id] not assign that payment.74 Additionally, the warden and other third parties did not acquire[] a right or interest enforceable against the plan when the pension proceeds [were] sent to [the] defendant at his current address.75 According to the court, the transfer of pension funds to Abbotts prison account did not constitute an assignment or alienation because it did not
29 U.S.C. 1144(a) (2006). Baugh, 986 F. Supp. at 1076. Id. at 1077; see also Guidry 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.
66. 67. 68.

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convey any legal right, interest, or title to another person.76 The majority countered the district courts interpretation in Baugh and asserted, [t]he involuntary nature of a deposit [did] not establish an assignment unless a person other than the beneficiary acquires a right or interest enforceable against the plan.77 However, the court conceded that an assignment would occur if the court were to order the pension fund to direct payments to anyone other than the defendant.78 The second issue considered by the court contemplates whether the disbursement of the pension funds after they [were] deposited in the defendants account contravenes ERISA.79 Ultimately, the court concluded that the State may garnish pension payments received by the beneficiary because ERISA does not expressly prohibit the attachment or seizure of benefits after they are obtained and deposited into a personal account.80 Additionally, the court looked to the decisions of other circuits as 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 incorrectly interpreted and applied the Department of Treasurys definition of assignment.83 Second, the dissent claimed that the persuasive authority used to reinforce the majoritys interpretation was inapplicable because in those statutory schemes no one was made a receiver84 of the defendants benefits before they were deposited into the defendants accounts and the courts did not order the defendants benefit plans to deliver the defendants funds into specified accounts.85 Ultimately, the dissent would have held

76. 77.

Id. 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 generally Guidry 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 and with directives from the MDOC, runs afoul of the federal . . . ERISA in cases where prisoners refuse to inform their pension plans of a change of address.87 The defendants included four prisoners, receiving pension payments from their employer, who were informed by the prison warden to direct those funds to their prison account.88 One of the prisoners complied, but the others refused.89 Additionally, the employer refused to redirect the payments without the prisoners authorization.90 The Sixth Circuit held for the defendants after concluding that SCFRA violates the anti-alienation provision of ERISA and upheld the district courts invalidation of orders and notices only to the extent that DaimlerChrysler 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.91 Although the State did not garnish funds from the pension until after they were deposited into the institutional account, SCFRA orders and notices were attached to the pensions funds before they were sent.92 Permitting access to the plan by virtue of the wardens notice would . . . create[] a legal obligation enforceable against the [p]ension [p]lan and would constitute a violation of ERISA.93 The fact that the warden could not access the funds until after they were deposited into the prisoners account was irrelevant because the State already effectively owned 90% of the payments even before they were received.94 Additionally, even though the institutional accounts bore the prisoners name, Michigan law controlled access and use of the funds deposited into the account.95 The DaimlerChrysler court did not intend to completely bar the State from accessing a prisoners pension funds.96 Instead, it instructed the State

Id. at 724. DaimlerChrysler Corp. v. Cox, 447 F.3d 967, 968 (6th Cir. 2006). Id. at 969-70. Id. at 970. Id. 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.

86. 87. 88. 89. 90. 91.

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to wait for the [p]ension [p]lan to send the benefit payments at the direction of the prisoner before the State encumber[ed] those payments and then plac[ed] a constructive trust on those already-paid funds.97 Otherwise, the state would violate ERISAs anti-alienation provision.98 D. State Treasurer v. Sprague In Sprague, the Michigan Court of Appeals upheld the lower courts determination permitting the State to employ SCFRA to seek reimbursement 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% of the funds held in the pension account to the State Treasurer, disburse the residual funds to Sprague, and terminate the account.100 The court held that the provisions of SCFRA did not violate ERISAs anti-alienation provision.101 The Sprague court identified the major issues addressed by the Michigan Supreme Court and the Sixth Circuit.102 First, the court determined that the Sixth Circuit did not address whether the state could [expressly] order a prisoner to direct a pension plan to send the prisoners assets to a prison account.103 Concluding that the federal courts silence on the issue revealed an absence of conflict, the Sprague court determined that the Abbott courts holding controlled the issues resolution, and upheld the trial courts order . . . requiring Sprague to direct Dow Chemical to send his pension payments to his prison account, rather than depositing them into his pension account . . . .104 Second, the court identified a conflict between Abbott and DaimlerChrysler on the question of whether a state court may order a pension plan to send pension payments to a prison account, rather

Id. Id. State Treasurer v. Sprague, 772 N.W.2d 452, 453 (Mich. Ct. App. 2009). Id. Id. See id. at 455. 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 the Pension Plan because that issue is not before us.). 104. Sprague, 772 N.W.2d at 455.

97. 98. 99. 100. 101. 102. 103.

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than depositing them into a prisoners pension account, without the direction of the prisoner.105 The Sprague court declined to follow the federal courts interpretation because the Michigan Supreme Courts holding and reasoning in Abbott controlled their analysis.106 The Sprague court indicated that in order to set aside Abbott, the United States Supreme Court must overrule or modify case law if it becomes obsolete, and until [the Supreme] Court takes such action, the Court of Appeals and all lower courts are bound by that authority.107 This case represents the culmination of jurisprudence responding to SCFRAs pension provision. The state and federal courts have clearly reached an impasse concerning the interpretation of ERISAs antialienation provision. A possible solution is an amendment to ERISA clarifying definitional ambiguity and prohibiting wages from being garnished from pension funds received by the beneficiary. IV. RESOLVING THE DISPUTE ERISAs anti-alienation provision reflects a policy choice made by Congress to safeguard a stream of income from pensioners (and their dependents, who may be, and perhaps, usually are, blameless), even if that decision prevents others from securing relief for the wrongs done to them.108 Courts have repeatedly refused to acknowledge any implied exceptions to the anti-alienation provision and have insisted on strictly enforcing 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 be possible contempt proceedings or negative implications 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 the Rooker-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 has established. In fact, the policies motivating the enactment of ERISA promote the protection of these assets even in the presence of wrongdoing by the beneficiary.110 On the other hand, the underlying concept surrounding the creation of a prisoner reimbursement statute also provides an appealing solution in difficult economic times. Producing a revenue stream from the inmate population attempts to offset the burden placed on the taxpayer, and Michigans statute has produced significant contributions since its inception.111 Additionally, proponents of reimbursement statutes argue 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 in prison, the taxpayers shoulder, albeit indirectly, the costs associated with maintaining the facilities and their inhabitants but inmates continue to collect money from their heavily protected pension.113 However, utilizing an inmates pension benefits undermines the purpose of ERISA, as SCFRA will more than likely leave an individual impoverished.114 Regardless, the protections of ERISA apply to both the employee and his dependents, shielding both from financial ruin.115 Inmates should be afforded the same protections allotted to other pensioners because the statute and the jurisprudence do not indicate that prisoners fall into any of the mandated exceptions.116 Additionally, courts have repeatedly refused to create implied exceptions to the anti-alienation provision, particularly when confronted with instances of wrongdoing by the pensioner.117 With this in mind, a prison sentence should not alter the protections afforded to an inmates pension. ERISA provides retirees and their dependents with a source of financial security.118 The attachment of pension funds by the state

See Patterson v. Shumate, 504 U.S. 753, 765 (1992). Daniel M. Levy, Tense Times: The Past, Present, and Future of Prisoner Reimbursement, 77 MICH. 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, supra note 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, supra note 37, at 396. 116. Reece, supra note 37, at 392-99. 117. Id. at 403. 118. See 29 U.S.C. 1056 (2006).

110. 111.

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should be prohibited in order to reinforce the policies underlying ERISA and to protect inmates and their dependents from insolvency. The courts opinions diverge primarily because ERISA does not define what constitutes an assignment and alienation according to the provision.119 The courts in the controlling cases both turn to the Department of the Treasurys regulations to clarify the definition, which defines the terms assignment and alienation as including: [A]ny direct or indirect arrangement (whether revocable or irrevocable) whereby a party acquires from a participant or beneficiary a right or interest enforceable against the plan, or to, all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary.120 Although courts agree about the source of the proper definition, the judiciary has the discretion to construe the scope of the terms liberally in the absence of terms defined specifically for the legislation.121 As a result, a court has free reign to reasonably interpret the provision in a manner that achieves the most favorable ends.122 After identifying a definitional reference point, the controlling authorities bifurcate when applying the statute to each individual case.123 The DaimlerChrysler court considered the Department of the Treasurys regulation, precedent, and the policies underlying ERISAs ratification.124 After examining the legislative history and other persuasive authorities, the Sixth Circuit concluded that the compulsory nature of the transfer, the absence of prisoners control over the funds deposited into their institutional accounts, and the States assertion of ownership over the proceeds of the funds all suggested, even if indirectly, that an assignment of the funds had taken place.125 The court similarly found that the appropriation of these funds did not align with the policies promoted by ERISA.126 Preventing financial insolvency for both the beneficiary and the dependents is one of ERISAs primary goals, and strict adherence to the anti-alienation provision reinforces that objective.127 The stigma attached
See id. 1056(d). 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 generally Abbott, 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. See DaimlerChrysler 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.; see Patterson v. Shumate, 504 U.S. 753, 760 (1992). See generally Guidry v.
119. 120.

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to institutionalized individuals makes prisoners more vulnerable to this type of 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] . . . .128 Consequently, they would not participate in the diminution of these safeguards in circumstances which might seem harmless 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 protecting employees from squandering their pension benefits before retirement outweighs the states interest in collecting restitution for incarceration. To support its interpretation, the Michigan Supreme Court used the Department of the Treasurys regulation and also considered the definitions provided by Blacks Law Dictionary,130 American Jurisprudence,131 the American Law Institute, and the Restatement Second of Contracts.132 Ultimately, the court concluded that an assignment or alienation would have occurred only when the property interest . . . has been transferred to another person.133 Because Abbotts pension funds were transferred from his pension account to another account bearing his name, the court order under SCFRA did not constitute a transfer.134 In fact, the transfer would only implicate ERISA if a person other than the beneficiary received legal title or an interest in the funds.135 This analysis strictly adheres to the definitions of assignment and alienation without considering the policies influencing 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 to Blacks 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 need for congressional clarification. In the past, Congress has been responsive to judicial activism when appropriate circumstances facilitated the need for reexamination and codification;137 however, in the absence of congressional validation, courts should continue to [insist] that pension plans are sacrosanct.138 Prohibiting Michigans access to prisoners pension funds would reinforce this policy. While both courts offer reasonable interpretations of the terminology, the existence of the conflicting analyses and applications necessitate a decisive resolution. There are a few alternatives to resolving the interpretational dispute. First, Congress could clearly define the terms alienation and assignment in the anti-alienation provision. The current definition leaves room for broad interpretation and precipitates the current conflict.139 The Sixth Circuit recognizes and promotes the policy behind ERISA, while the Michigan Supreme Court favors the policy supporting SCFRA.140 Congress 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 to inmates. Prisoners represent a vulnerable population that is usually not afforded the same rights and privileges as other groups. Michigan should discontinue reimbursement policies targeting pensions in the absence of a congressional mandate permitting garnishment. Second, Congress could prohibit the garnishment of pension funds before and after the beneficiary receives them. For example, the Social Security Act specifically provides that none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.141 Similarly, the Veterans Benefits Act prohibits the attachment of benefits either before or after receipt by the beneficiary.142 Both of these statutes contain language specifying the extent of the elevated protections surrounding those funds.143 The absence of explicit language in ERISAs regulations permits courts to infer that Congress did intend for ERISAs protections to envelope funds received by

Reece, supra note 37, at 393, 398-405. Id. at 380. 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 generally DaimlerChrysler 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. See 42 U.S.C. 407(a); 38 U.S.C. 5301(a).

137. 138. 139.

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the beneficiary.144 Accordingly, after funds are withdrawn from the account they may be garnished.145 Michigans SCFRA circumvents ERISAs protections by requiring inmates to transfer pension funds to their state-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 the implementation of reimbursement statutes that target pension funds. The Fourth Circuit in United States v. Smith suggested that ERISA funds should be protected before and after they are received.147 Here, the court declined to adopt the position employed by other circuits148 when it decided that a restitution order would not be upheld if it deducted from Smiths pension benefits.149 The majority distinguished between funds disbursed from an ERISA plan before an employee has retired and such funds paid as an annuity for retirement purposes.150 The court recognized that when individuals decide to draw funds from their pension prior to retirement, the protections afforded by ERISA become obsolete.151 However, ERISA prevents assignment or alienation when the funds are distributed as income during retirement years.152 This interpretation supports the policy objectives underlying the provision that have been reinforced repeatedly by the judiciary.153 ERISAs and SCFRAs policy objectives conflict when Michigan applies the statute to pension funds. To resolve this dispute, Congress should clarify the definitions of assignment and alienation to avoid varying judicial interpretations. Alternatively, Congress should prohibit the garnishment of pension funds before or after they are received. Both of these alternatives will reinforce the protections and policies of ERISA, which were circumvented by Michigans reimbursement program.

Abbott, 660 N.W.2d at 722. Id. at 719. DaimlerChyrsler Corp. v. Cox , 447 F.3d 967, 976 (6th Cir. 2006). United States v. Smith, 47 F.3d 681, 684 (4th Cir. 1995). 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 generally Guidry I, 493 U.S. 365, 376 (1990); Smith, 47 F.3d at 682.

144. 145. 146. 147. 148.

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Reimbursement statutes seem like an obvious solution to an uncontrollable problem, but the laws that states implement to ensure reimbursement must comport with public policy and federal law. The aversion associated with paying a significant portion of the inmates living expenses154 is understandable and reasonable. However, there should be limitations that consider the broader implications of including pension benefits as income accessible to the state for reimbursement. Congress balanced those interests when it drafted the anti-alienation provision of ERISA, and the Supreme Court reinforced those policies whenever it was confronted with cases that attempted to create exceptions to the rule.155 Michigans interpretation of ERISAs application to SCFRA represents a confrontation between conflicting interests that should be resolved. The ambiguity of the anti-alienation provision permits varying interpretations with conflicting results. Congress can ameliorate this issue by clarifying its intent and specifying the level of protection that should be afforded to pension plan funds. Although the statute provides extensive safeguards shielding pension funds from employee and employer abuse, it should also shield the employee from reimbursement statutes that undermine ERISAs foundational objectives. Ultimately, an inmates incarceration should not preclude the inmates dependents from receiving the full benefit of his or her retirement plan.

Conboy, supra note 6, at 349. 29 U.S.C. 1056(d) (2006); see Guidry 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.).

154. 155.