Benefits Monthly Minute

ERISA Preemption Protects Ex's 401(k) | DOL Online Search Tool Gets Off the Ground

The April Monthly Minute looks at a recent court decision highlighting ERISA’s preemptive power in response to a 401(k) garnishment claim and explores the DOL’s latest steps towards creating an online search tool intended to connect participants with their lost retirement savings.

ERISA Preemption Protects Ex’s 401(k)

A Pennsylvania district court recently quashed a request by the ex-wife of an employee to garnish funds from her husband’s 401(k) account. In Burns v. Cooper (E.D. Pa. 2024), plaintiff had obtained a $75,000 judgment in state court against her ex-husband in a defamation action. Despite the verdict being upheld on appeal, the ex-husband claimed he was unable to pay. Plaintiff filed a writ of execution in state court on the monies held in her ex-husband’s 401(k) plan, and argued that he improperly fluctuated his 401(k) contributions in order to avoid paying, in violation of a Pennsylvania fraudulent conveyance law. The plan sponsor removed the garnishment matter to federal court which ruled that the plaintiff did not establish her ex-husband violated the Pennsylvania law, and further, that ERISA preempted the state law at issue. As a result, the 401(k) funds were exempt from garnishment under ERISA’s anti-alienation provision.

KMK Comment: While ERISA’s anti-alienation rule protects retirement assets from most creditors, this protection is not always available. Fraudulent transfers intended to avoid creditors may lose ERISA’s protection. In this particular case, the federal court found that the ex-husband “did nothing more than move his money from one place to another.” Accordingly, in the absence of a transfer, plaintiff could not avail herself of the state law’s remedies. Furthermore, there were no grounds to disregard ERISA’s preemptive power and the consequent application of ERISA's anti-alienation provision.

DOL Online Search Tool Gets Off the Ground

The DOL is proposing to collect information from plan administrators on a voluntary basis to establish an online search tool to help workers locate lost retirement savings. As reported in the January 2023 Monthly Minute, SECURE 2.0 creates a national online searchable lost and found database for retirement plans at the DOL. SECURE 2.0 directed the creation of the database by December 29, 2024, which is intended to enable those who might have lost track of their retirement plan to search for plan administrator contact information. The DOL is now requesting assistance from plan administrators to populate its online “Retirement Savings Lost and Found” database. The DOL’s notice of proposed information collection asks plan administrators to provide information voluntarily by attaching the requested information to their 2023 Form 5500. The specific data elements the agency is seeking includes much of the same information that appears on IRS Form 8955-SSA (the IRS has declined to provide this information to the DOL directly), in addition to mailing addresses, emails, and telephone numbers of separated vested participants and beneficiaries, along with identification of separated vested participants of normal retirement age or older owed a vested benefit, and who have been unresponsive to plan communications or whose contact information is no longer accurate.

KMK Comment: Since 2017, enforcement efforts have reportedly recovered more than $6.7 billion for missing participants and beneficiaries. With any luck, this new search tool will help connect participants and beneficiaries with their orphaned retirement plan accounts without the need for burdensome enforcement efforts. However, given the amount of detailed information the DOL is requesting, plan sponsors may be reluctant to respond to this voluntary request for information.

The KMK Law Employee Benefits & Executive Compensation Group is available to assist with these and other issues.

Lisa Wintersheimer Michel

John F. Meisenhelder

Antoinette L. Schindel

Kelly E. MacDonald

Rachel M. Pappenfus

KMK Employee Benefits and Executive Compensation email updates are intended to bring attention to benefits and executive compensation issues and developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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