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RAYMOND B. YATES, M.D., P.C. PROFIT SHARINGPLAN V. HENDON (02-458)
Web-accessible at:
http://supct.law.cornell.edu/supct/html/02-458.ZS.html
Argued January 13, 2004 -- Decided March 2, 2004
Opinion author: Ginsburg
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Enacted "to protect ... the interests
of participants in employee benefit plans and their
beneficiaries," 29 U.S.C. sect.
1001(b), the Employee Retirement Income Security Act of
1974 (ERISA) comprises four titles. Relevant here, Title I, 29
U.S. C. sect.1001 et seq., mandates minimum
participation, vesting, and funding schedules for covered
pension plans, and establishes fiduciary conduct standards for
plan administrators. Title II, codified in 26 U.S. C., amended
various Internal Revenue Code (IRC) provisions pertaining to
qualification of pension plans for special tax treatment, in
order, inter alia, to conform to Title I's
standards. Title III, 29 U.S. C. sect.1201 et seq.,
contains provisions designed to coordinate enforcement efforts
of different federal departments. Title IV, 29 U.S.C. sect.
1301 et seq., created the Pension Benefit Guaranty
Corporation and an insurance program to protect employees
against the loss of "nonforfeitable" benefits upon
termination of pension plans lacking sufficient funds to pay
benefits in full. This case concerns Title I's definition
and coverage provisions, though those provisions, indicating
who may participate in an ERISA-sheltered plan, inform each of
ERISA's four titles. Title I defines "employee
benefit plan" as "an employee welfare benefit plan or
an employee pension benefit plan or ... both,"
sect.1002(3); "participant" to encompass "any
employee ... eligible to receive a benefit ... from an
employee benefit plan," sect.1002(7);
"employee" as "any individual employed by an
employer," sect.1002(6); and "employer" to
include "any person acting ... as an employer, or
.... in the interest of an employer," sect.1002(5).
Yates was sole
shareholder and president of a professional corporation that
maintained a profit sharing plan (Plan). From the Plan's
inception, at least one person other than Yates or his wife was
a Plan participant. The Plan qualified for favorable tax
treatment under IRC sect.401. As required by the IRC, 26 U.S.C. sect.
401(a)(13), and ERISA, 29 U.S. C. sect.1056(d), the Plan
contained an anti-alienation provision. Entitled
"Spendthrift Clause," the provision stated, in
relevant part: "Except for ... loans to
Participants as [expressly provided for in the Plan], no
benefit or interest available hereunder will be subject to
assignment or alienation." In December 1989, Yates
borrowed $20,000 from another of his corporation's pension
plans (which later merged into the Plan), but failed to make
any of the required monthly payments. In November 1996,
however, Yates paid off the loan in full with the proceeds of
the sale of his house. Three weeks later, Yates's
creditors filed an involuntary petition against him under
Chapter 7 of the Bankruptcy Code. Respondent Hendon, the
Bankruptcy Trustee, filed a complaint against petitioners (the
Plan and Yates, as Plan trustee), asking the Bankruptcy Court
to avoid the loan repayment. Granting Hendon summary judgment,
the Bankruptcy Court first determined that the repayment
qualified as a preferential transfer under 11 U.S.C. sect.
547(b). That finding was not challenged on appeal. The
Bankruptcy Court then held that the Plan and Yates, as Plan
trustee, could not rely on the Plan's anti-alienation
provision to prevent Hendon from recovering the loan repayment
for the bankruptcy estate. That holding was dictated by Sixth
Circuit precedent, under which a self-employed owner of a
pension plan's corporate sponsor could not
"participate" as an "employee" under ERISA
and therefore could not use ERISA's provisions to enforce
the restriction on transfer of his beneficial interest in the
plan. The District Court and the Sixth Circuit affirmed on the
same ground. The Sixth Circuit's determination that Yates
was not a "participant" in the Plan for ERISA
purposes obviated the question whether, had Yates qualified as
such a participant, his loan repayment would have been shielded
from the Bankruptcy Trustee's reach.
Held: The working owner of a
business (here, the sole shareholder and president of a
professional corporation) may qualify as a
"participant" in a pension plan covered by ERISA. If
the plan covers one or more employees other than the business
owner and his or her spouse, the working owner may participate
on equal terms with other plan participants. Such a working
owner, in common with other employees, qualifies for the
protections ERISA affords plan participants and is governed by
the rights and remedies ERISA specifies.
Pp. 8-20.
(a) Congress
intended working owners to qualify as plan participants.
Because ERISA's definitions of "employee" and,
in turn, "participant" are uninformative, the Court
looks to other ERISA provisions for instruction. See
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323.
ERISA's multiple textual indications that Congress
intended working owners to qualify as plan participants
provide, in combination, "specific guidance,"
ibid., so there is no cause in this case to resort to
common law. ERISA's enactment in 1974 did not change the
existing backdrop of IRC provisions permitting corporate
shareholders, partners, and sole proprietors to participate in
tax-qualified pension plans. Rather, Congress' objective
was to harmonize ERISA with these longstanding tax provisions.
Title I of ERISA and related IRC provisions expressly
contemplate the participation of working owners in covered
benefit plans. Most notably, Title I frees certain plans in
which working owners likely participate from all of
ERISA's fiduciary responsibility requirements. See 29 U.S.C. sect.
1101(a) and 26
U.S.C. sect. 414(q)(1)(A) and 416(i)(1)(B)(i). Title I
also contains more limited exemptions from ERISA's
fiduciary responsibility requirements for plans that ordinarily
include working owners as participants. See 29 U.S.C. sect.
1103(a) and (b)(3)(A) and 26 U.S.C. sect.
401(c)(1) and (2)(A)(i), 1402(a) and (c). Further, Title I
contains exemptions from ERISA's prohibited transaction
exemptions, which, like the fiduciary responsibility
exemptions, indicate that working owners may participate in
ERISA-qualif
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