Exception to Antiassignment Rule

[Guest merlin]

Reg. section 1.401(a)-13(e)(1) provides that a participant may assign all or part of his benefit to a third party,including the employer,provided that certain conditions are met. One of those conditions is that the third party must file a written acknowledgement with the plan administrator stating that the third party has no enforceable right to the benefit. If assidgnment is being made to the employer,and the employer is also the plan administrator,is the employer truly a third party,or is the assignment invalidated?

[Belgarath]

Merlin - I thought that the specific language of the regulation was that you could only assign a particular payment or future payments. And maybe that's what you are saying? I've always thought that this meant you couldn't simply assign your accrued benefit as collateral for a loan, for example, but could assign certain future benefit payments, if you are in pay status, or a particular payment.

But to answer your question, I see no reason why it cannot be assigned to the employer, assuming all other intricacies observed. The reg specifically includes the employer, as you mentioned. I wouldn't worry about any prohibited transaction consequences here.

FINAL-REG, PEN-FINAL-REG, §1.401(a)-13. Assignment or alienation of benefits

(d) Exceptions to general rule prohibiting assignments or alienations--(1) Certain voluntary and revocable assignments or alienations. Notwithstanding paragraph (B)(1) of this

section, a plan may provide that once a participant or beneficiary begins receiving benefits under the plan, the participant or beneficiary may assign or alienate the right to future benefit

payments provided that the provision is limited to assignments or alienations which--

(i) Are voluntary and revocable;

(ii) Do not in the aggregate exceed 10 percent of any benefit payment; and

(iii) Are neither for the purpose, nor have the effect, of defraying plan administration costs.

For purposes of this subparagraph, an attachment, garnishment, levy, execution or other legal or equitable process is not considered a voluntary assignment or alienation.

FINAL-REG, PEN-FINAL-REG, §1.401(a)-13. Assignment or alienation of benefits

(e) Special rule for certain arrangements--(1) In general. For purposes of this section and notwithstanding paragraph ©(1) of this section, an arrangement whereby a participant or

beneficiary directs the plan to pay all, or any portion, of a plan benefit payment to a third party (which includes the participant’s employer) will not constititute an “assignment or

alienation” if--

(i) It is revocable at any time by the participant or beneficiary; and

(ii) The third party files a written acknowledgement with the plan administrator pursuant to subparagraph (2) of this paragraph.

(2) Acknowledgement requirement for third party arrangements. In accordance with paragraph (e)(1)(ii) of this section, the third party is required to file a written acknowledgement

with the plan administrator. This acknowledgement must state that the third party has no enforceable right in, or to, any plan benefit payment or portion thereof (except to the extent of

payments actually received pursuant to the terms of the arrangement). A blanket written acknowledgement for all participants and beneficiaries who are covered under the arrangement

with the third party is sufficient. The written acknowledgement must be filed with the plan administrator no later than the later of--

(i) 18 August 1978; or

(ii) 90 days after the arrangement is entered into.

[Guest merlin]

The reg says "...all.or any portion,of a plan benefit..." In the ERISA Outline Book examples are given of assignment of both lump sums and benefits in pay status. But you're right that once benefits are in pay status only future payments can be assigned.Nor can benefits be pledged as collateral.

Also,since the initial post I have heard from an attorney that in the absence of a true third party for "checks and balances" the assignment to the employer/plan administrator would result in a prohibited transaction. Just his opinion though.No cites or case references.

[Belgarath]

Interesting. Certainly, it is a conservative position with which you can't go wrong, and that's not a bad thing! Thanks for passing this along.

[jpod]

I think it is evident that the three parties are (1) the participant, (2) the plan (i.e., not the plan administrator), and (3) the third party, who can be the employer even if the employer is also the plan administrator.