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Pension funds can now be used to pay restitution in criminal cases, according to a recent ruling by the U.S. Court of Appeals for the 9th Circuit. The court held that the Victim’s Restitution Act of 1996 clears the way for victims to go after funds held in an individual’s pension account when seeking restitution in criminal cases. Prior to this ruling, courts followed federal pension law, the Employee Retirement Income Security Act of 1974, which specifically holds that pensions cannot be used to pay restitution.
In this case, Raymond Novak and his wife were convicted of stealing and reselling telephone equipment from Nestle Food Company. In the court’s verdict, the couple was ordered to pay $2.2 million in restitution. As a result, the government decided to use the Victim’s Restitution Act of 1996 to challenge ERISA so that Raymond Novak’s $200,000 pension could be drawn from to get the money the company was owed in restitution.
This holding applies to individuals with retirement benefits that owe someone money as a result of a criminal act. If a crime is committed by a person with a pension, the government can act on behalf of the victim. The government collects the money and then gives it to the victim. In this case there were two victims: the private company, which was a victim of embezzlement, and the government, which was a victim of tax fraud.
Although the court ruled that pensions can only be garnished to pay off court-ruled restitution when a participant is eligible to receive pension benefits under the plan, it did not clarify how innocent children and spouses who counted on receiving these pension benefits –and who did nothing wrong – will be affected by the court’s ruling. The ruling says that the government cannot unilaterally take a benefit if a plan requires spousal consent, but it does not indicate whether the government can force spousal consent or what rights spouses have in such a situation. Also unclear is how much of the total pension will be used to pay off the debt and whether there will be a penalty for early withdrawal of pension funds, among other issues.
While this ruling only affects cases in the 9th Circuit (which includes California, Oregon, Washington, Arizona, Montana, Idaho, Nevada, Alaska, Hawaii, Guam and the Northern Mariana Islands), it may be used as the basis for rulings in other circuits. The case is U.S. v Novak. Read the court’s decision.
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