Overview
A new district court case, VFS Financing, Inc. v. Elias-Savion-Fox LLC, 2014 U.S. Dist. LEXIS 166240 (S.D.N.Y. Dec. 1, 2014), ruled Section 514(a) of ERISA does not preempt application of a state anti-garnishment statute to a SIMPLE retirement account. The case not only adopts a narrow view of ERISA’s preemptive scope, but also highlights a seeming anomaly in the law. Unlike other types of IRAs, simplified employee pensions (SEPs) and SIMPLE retirement accounts (SIMPLEs) that receive employer contributions are generally considered to be “employee benefit plans” subject to ERISA (including ERISA’s preemption of state laws that “relate to” such plans), but the anti-alienation creditor protection generally extended to ERISA-covered pension plans is inapplicable to SEPs, SIMPLEs, and other types of IRA arrangements under IRC § 408. The district court’s holding that ERISA did not preempt application of a state law protecting SEPs, SIMPLEs, and other types of IRAs against garnishment is difficult to reconcile with the Supreme Court’s decision in Mackey v. Lanier Collection Agency & Service, Inc., 486 U.S. 825 (1988), which held that a Georgia law forbidding the garnishment of welfare plan benefits (also not protected by ERISA against assignment or alienation) was preempted.
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