Pension and social security benefits, as well as child support, should be immune from garnishment and levy.

David S. Rich, Esq. advises that under section 401(a)(13) of the Internal Revenue Code (the “IRC”), 26 U.S.C. § 401(a)(13), an employee pension benefit plan, in order to be qualified under the IRC, must provide “that benefits provided under the plan may not be assigned or alienated.” A qualified plan’s anti-alienation provisions are effective to preclude garnishment of a participant’s pension benefits against a judgment creditor.

However, the IRC and the implementing regulations have recognized certain exceptions to the general rule of anti-alienation, including qualified domestic relations orders (“QDROs”), limited and voluntary revocable assignments of benefits by the participant, loans from the plan to the participant secured by his/her vested accrued benefit under the plan, and enforcement of a federal tax levy or of a judgment in favor of the United States resulting from unpaid tax assessments.

Trisha Connors, Esq. adds: Pensions and social security benefits as well as child support are immune from garnishment and levy. A problem frequently arises once these benefits are deposited into a bank account that has the pension/benefit funds and another source of funds such as paychecks or gifts or any other source of income. The bank that is served with a levy withholds the funds and may even turn them over to the creditor and the only way a person can get them back is by motion. The account holder must do a step by step analysis of the ins and outs of the account to prove that the funds levied on were in fact exempt pension/social security benefits and not the non-exempt funds.

To aleviate some of these problems, the debtor should open an account that ONLY receives pension and other exempt benefits.

However, even if the debtor gets an order stating that the funds were improperly levied on, the bank will probably keeps the processing fee it charged FOR EACH LEVY. The bank may refused to refund the fee, stating “the order applies only to the creditor,” not the bank.

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

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