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Anti-Alienation Not Applicable for Contested Claim


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By Mary Leigh Pirtle

The Employee Retirement Income Security Act of 1974 (ERISA) anti-alienation provision generally prevents plan benefits from being assigned or alienated.  However, this provision only applies to plan benefits to which one is entitled to receive and will not protect an employee who signs a general release of claims as part of a severance package, and later contests his rights to certain plan benefits, as in the case discussed below.

The employee was initially eligible to receive pension benefits under his employer’s pension plan until the plan administrator modified the plan to exclude certain departments.  While the employee remained in an eligible department at the time the plan amendment was made, he was later promoted to an ineligible department, and ceased receiving pension benefits.  Several years later, the employee was laid-off and received a severance package in exchange for a general release of any potential claims he may have against his former company.  The release waived all claims known at the time it was signed.  

Afterwards, the employee realized he was missing pension benefits for the years occurring after his promotion. The employee then petitioned his former employer for those additional benefits,  but was denied.  He then filed a lawsuit in federal court seeking the benefits under ERISA’s anti-alienation provision, which prevents certain pension benefits claims from being waived through a general release.   

At trial, the employer argued that his claim for additional pension benefits did not accrue until after his employer denied his claim for those benefits, thus arising after he signed the release.  The district court granted the employer’s motion to dismiss. On appeal, the U.S. Court of Appeals for the Seventh Circuit Court affirmed the lower court’ ruling and dismissal of the employee’s claims.  

To begin with, the Seventh Circuit reasoned that ERISA’s anti-alienation provision did not apply to this contested pension claim because anti-alienation protection only applied to pension entitlement matters, such as the vested benefits to which a plaintiff is entitled under the terms of the pension plan itself.  Because the employee’s claim was for benefits he was not entitled under the pension plan as written, it was a contested claim and not a pension entitlement matter.  Contested claims are to be contested and resolved at the time a release is entered into, not after.  The employee was encouraged to seek the advice of an attorney prior to signing the release, however, he did not do so.  

Because contested claims are outside of the protection of ERISA and may be waived, the Seventh Circuit was next faced with analyzing whether the former employee received actual or constructive notice of the plan amendment.  Whether the former employer received actual or constructive notice of the plan amendment was essential to the former employer’s claim for additional benefits.  The general release only waived those claims that were known to the employee at the time the release was signed, so if he never received notice, the wavier would not be effective.  While the employee alleged he did not receive the email notice, several of the other employees in his division testified that they were notified.  

Additionally, the court held that even if he had not receive the actual email notice from his employer, the employee did receive constructive notice three years before he signed the release on his Statement of Individual Benefits.  This Statement informed the employee that “because of [his] current employment classification, [he was] ineligible to participate in the Retirement plan.”  

Given the ERISA anti-alienation provision did not apply to the employee’s contested claim and the fact that the employee received constructive notice of the plan amendment, at the least, the employee’s claim for additional benefits was dismissed.  As always, before agreeing to waive any claims by signing a general release, consult with an attorney to better understand your rights.

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