Skiba v. Laher ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
8-2-2007
Skiba v. Laher
Precedential or Non-Precedential: Precedential
Docket No. 05-4168
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007
Recommended Citation
"Skiba v. Laher" (2007). 2007 Decisions. Paper 515.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/515
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
Case No. 05-4168
__________
IN RE: DEBRA A. LAHER; TIMOTHY M. LAHER,
Debtors
GARY V. SKIBA
v.
TIMOTHY M. LAHER;
DEBRA A. LAHER;
TIAA-CREFF
Timothy M. Laher;
Debra A. Laher,
Appellants
__________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil No.05-cv-00151)
District Judge: Honorable Sean J. McLaughlin
__________
Submitted Under Third Circuit LAR 34.1(a)
on March 28, 2007
Before: RENDELL, BARRY, and CHAGARES,
Circuit Judges.
(Filed: August 2, 2007)
Joseph B. Spero [ARGUED]
3213 West 26th Street
Erie, PA 16506
Counsel for Appellants
Timothy M. Laher; Debra A. Laher
Gary V. Skiba [ARGUED]
Yochim, Skiba, Johnson, Cauley & Nash
345 West 6th Street
Erie, PA 16507
Counsel for Appellee
Gary V. Skiba
2
__________
OPINION OF THE COURT
__________
RENDELL, Circuit Judge.
This case presents the question of whether Timothy M.
Laher’s TIAA-CREF retirement annuity is excluded from the
bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2). We hold
that it is, and will reverse the decision of the District Court and
order that the case be remanded to the Bankruptcy Court for
entry of an order excluding the annuity from the bankruptcy
estate.
FACTUAL AND PROCEDURAL HISTORY
While employed by Gannon University, Timothy Laher
participated in a tax-deferred retirement plan. Pre-tax
contributions were taken from his paycheck and accumulated
into a sum that would be used to purchase a contract that would
pay him an annuity over time after retirement.1 Salary
1
“A Tax Deferred Annuity Plan is an employee benefit plan
established by your Employer under IRC Section 403(b), under
which you may make salary reduction contributions to an
annuity contract.” CREF Annuity Certificate, App. 89. The
3
contributions and employer contributions were fixed as a
percentage of the employee’s salary.2 Under the plan, 3% of an
employee’s compensation was withheld from his paychecks, and
Gannon contributed an amount equal to 7% of the employee’s
compensation. Participation in the plan was mandatory. See
Gannon Plan, App. 44 (“An Eligible Employee is required to
begin participation in the Plan no later than the Plan Entry Date
following the completion of five Years of Service at the
Institution or the attainment of age 30, whichever occurs later.”).
Under the particular plan chosen by Laher, the pre-tax
contributions would be used to pay for premiums on an annuity
contract. The manager for his plan was TIAA-CREF, the
Teacher Insurance and Annuity Association – College
Retirement Equities Fund. TIAA-CREF “offer[ed] fixed dollar
(guaranteed) annuities through the Teachers Insurance and
Annuity Association (TIAA); or several variable investment
accounts through the College Retirement Equities Fund
terms of the account state that the plan was established “to
provide lifetime income benefits for retired employees.”
App. 62 (Gannon University Defined Contribution Retirement
Plan[,] Summary Plan Description).
2
Skiba states that “[t]here is no dispute that the pensions of
Timothy M. Laher are annuities qualified under IRC § 403(b).”
Appellee’s Br. 4. The TIAA-CREF form states that a “Funding
Vehicle is an annuity contract or custodial account established
to provide retirement benefits under IRC Section 403(b).”
App. 25.
4
(CREF).” App. 67. Each premium paid for an “Accumulation
Unit” in the TIAA or CREF accounts, and the sum of such units
would eventually provide the annuity benefits for Laher.3
The terms of the Summary Plan Description informed
Laher that the “accumulations resulting from your participation
in one or more of the investment contracts or accounts offered
by the Fund Managers [such as TIAA-CREF] will be the source
of your retirement benefits, which can be paid out under a
variety of methods available under this Plan.” App. 62. “You
3
The Gannon plan includes a “Retirement Transition Benefit,”
whereby at retirement a participant “may elect to receive up to
10% of his or her Accumulation Accounts in TIAA or CREF in
a lump sum prior to their being converted to retirement income.”
App. 70. However, the CREF Annuity Certificate informs the
participant that “You may choose to withdraw, as a Lump-sum
Benefit, all or part of your Accumulation before starting to
receive a lifetime income. Federal tax law may restrict
distributions before age 59½, as outlined in Section 47.”
App. 77. Section 47 (“Restrictions on Elective Deferrals”)
states: “This Certificate is designed to be a part of a tax-deferred
group annuity contract as specified under IRC Section 403(b).”
It prohibits distribution of certain portions of the participant’s
Accumulation “until the participant: (1) attains age 59½;
(2) separates from service of the employer under whose plan the
aforementioned portion is attributable; (3) dies; (4) becomes
disabled within the meaning of IRC Section 72(m)(7); or
(5) encounters financial hardship within the meaning of IRC
Section 403(b).”
5
can begin to receive Plan benefits only after you have retired or
terminated employment with the University.” App. 70. The
CREF and TIAA certificates explained how the money would
be managed, and each stated that the benefits would be protected
from the claims of creditors to the “fullest extent permissible by
law.” CREF Certificate, App. 100; TIAA Certificate, App. 132.
Both stated that they were governed by New York law.
On May 20, 2004, Laher and his wife Deborah
(“Debtors”) filed a Chapter 7 bankruptcy petition in the Western
District of Pennsylvania’s Bankruptcy Court. On Schedule B of
their petition, Debtors listed the retirement account with TIAA-
CREF. The account had a value of $92,847.93. Records
indicate that roughly $41,000 of that amount was held in a
“TIAA Traditional” account, which “guarantees [the] principal
and a specified interest rate.” App. 20 (Portfolio Summary).
The other $51,000 was held in funds listed as “CREF Stock”
and “CREF Money Market.” Id. A pie chart in the summary
stated that 29% of Laher’s monies was in equities, 45% was
guaranteed, and 26% was in a money market account. Id.
On September 9, 2004, the Chapter 7 Trustee, Gary
Skiba, filed an adversary proceeding alleging that Laher’s
TIAA-CREF annuity was property of the bankruptcy estate
“under either Patterson v. Shumate, 504 U.S. 753 (1992), or
11 U.S.C. § 541(c)(2) because it is not a trust.” Skiba Compl. 2;
App. 18. Section 541 states, in relevant part:
6
The commencement of a case under
section 301, 302, or 303 of this title [11 USCS
§ 301, 302, or 303] creates an estate. Such estate
is comprised of all the following property,
wherever located and by whomever held:
(1) Except as provided in subsections (b)
and (c)(2) of this section, all legal or equitable
interests of the debtor in property as of the
commencement of the case.
11 U.S.C. § 541(a) (emphasis added).
Section (c) states:
(1) Except as provided in paragraph (2)
of this subsection, an interest of the debtor in
property becomes property of the estate under
subsection (a)(1), (a)(2), or (a)(5) of this section
notwithstanding any provision in an agreement,
transfer instrument, or applicable nonbankruptcy
law--
(A) that restricts or conditions
transfer of such interest by the debtor; or
(B) that is conditioned on the
insolvency or financial condition of the debtor, on
7
the commencement of a case under this title, or on
the appointment of or taking possession by a
trustee in a case under this title or a custodian
before such commencement, and that effects or
gives an option to effect a forfeiture,
modification, or termination of the debtor's
interest in property.
(2) A restriction on the transfer of a
beneficial interest of the debtor in a trust that is
enforceable under applicable nonbankruptcy law
is enforceable in a case under this title.
11 U.S.C. § 541(c) (emphasis added).
Skiba argued that the annuity’s restriction on creditors’
access to the account did not apply to Laher’s annuity because
the annuity did not qualify as a “trust” under § 541(c)(2). On
April 12, 2004, Judge Bentz rejected this argument and ruled
that the TIAA-CREF plan was excluded from the bankruptcy
estate. In a one-page order, Judge Bentz wrote that “it is
ORDERED that, in accordance with the separate Opinion issued
this date in the case of In re Gould, Bankruptcy No. 04-11889,
Document No. 19 related to Document No. 13, the Complaint is
dismissed and the Debtor’s retirement plan through TIAA-
CREF is excluded from the bankruptcy estate.” App. 34.
8
Judge Bentz’s opinion in In re Gould explained his
reasoning. Similar to the instant case, the case involved a debtor
whose pension plan was a “tax sheltered annuity plan qualified
under section 403(b) of the Internal Revenue Code, 26 U.S.C.
§ 403(b).” Skiba v. Gould (In re Gould), 322 B.R. 741, 741
(Bankr. W.D. Pa. 2005). The trustee (Gary Skiba, the same
trustee as in the instant case) argued that the “Pension Plan is an
annuity by definition and not a trust; that only an interest in a
trust can be a subject of an enforceable transfer restriction
within the meaning of 11 U.S.C. § 541(c)(2); and therefore, the
Debtor’s Pension Plan cannot be excluded from the bankruptcy
estate.” Id. at 742.4
Judge Bentz began by citing § 541(c)(2), id. at 742, and
then took issue with the decision of the Bankruptcy Appellate
Panel in the case of In re Adams, 302 B.R. 535 (B.A.P. 6th Cir.
4
See BLACK’S LAW DICTIONARY 1508 (6th ed. 1990) (defining
“Trust” as a “legal entity created by a grantor for the benefit of
designated beneficiaries under the laws of the state and the valid
trust instrument”); see also RESTATEMENT (THIRD) OF TRUSTS
§ 2 (2003) (“A trust, as the term is used in this Restatement
when not qualified by the word ‘resulting’ or ‘constructive,’ is
a fiduciary relationship with respect to property, arising from a
manifestation of intention to create that relationship and
subjecting the person who holds title to the property to duties to
deal with it for the benefit of charity or for one or more persons,
at least one of whom is not the sole trustee.”).
9
2003), noting that he agreed with the dissenting opinion in that
case. Specifically, Judge Bentz believed that the Adams
majority erroneously “read[] the statute literally to require a
trust.” Id. Judge Bentz held that a literal trust was not required,
but, rather, a plan which functioned like a trust would satisfy
the “trust” requirement, relying on the following language of
Judge Latta’s dissent in Adams:
I find no functional distinction between the
protections afforded to beneficiaries of
ERISA-qualified pension plans in which assets
are held in trust and those in which assets are used
to purchase annuity contracts. Outside of
bankruptcy, no creditor of the Adams would be
able to reach the debtors’ beneficial interests in
their pension plans to satisfy claims, and this is
true not because these interests are exempt from
execution pursuant to state law, but because they
are exempt from execution pursuant to federal
law.
Id. (quoting In re Adams, 302 B.R. 535, 547 (B.A.P. 6th Cir.
2003) (Latta, J., dissenting)).
Judge Bentz agreed:
[My] view is aligned with the view of the
dissenting Opinion in Adams. [I] see no reason to
10
treat a corporate pension plan differently than a
403(b) annuity pension plan. Both are set up by
a third party, utilize the tax vehicles provided by
the Internal Revenue Code to accumulate funds
on a tax-free basis and contain anti-alienation
clauses to prevent creditors from reaching a
debtor's interests in the plan. [I] further conclude
that this broader view of § 541(c)(2) is supported
by the Congressional goal of protecting pension
benefits.
The anti-alienation clause set forth in Debtor’s
Pension Plan sufficiently restricts Debtor’s use of
funds such that outside of bankruptcy, no creditor
would be able to reach Debtor’s interests, and
therefore, the Pension Plan must be excluded from
the bankruptcy estate by the provisions of
§ 541(c)(2).
Id. at 744 (citation omitted).
The trustee appealed and on August 5, 2005, the District
Court for the Western District of Pennsylvania reversed the
decision of the Bankruptcy Court. The District Court first stated
that the “lone issue before us is whether [the] TIAA-CREF
pension plan falls within the § 541(c)(2) exception.” Skiba v.
Gould, 337 B.R. 71, 72-73 (W.D. Pa. 2005). It stated that the
“debtors, citing Patterson [v. Shumate, 504 U.S. 753 (1992)],
11
urge [me] to affirm the bankruptcy court’s conclusion that any
interest in an employer’s pension plan can be excluded from the
bankruptcy estate if the plan is subject to an enforceable transfer
restriction under applicable nonbankruptcy law.” Id. at 73. It
noted that “[i]n the wake of Patterson, several courts have . . .
[held] that a broad range of retirement plans other than ‘trusts’
are excludable from the bankruptcy estate as long as the
instrument contains a qualifying transfer restriction provision.”
Id.
In the District Court’s view, however, such an approach
was incorrect: “The Third Circuit . . . has since rejected this
broader inquiry, albeit implicitly. In Orr v. Yuhas (In re Yuhas),
104 F.3d 612 (3rd Cir. 1997), the Third Circuit, interpreting
Patterson, announced five requirements that must be satisfied
before a pension plan can be excluded from the bankruptcy
estate.” Id. The first was that “the IRA must constitute a ‘trust’
within the meaning of 11 U.S.C. § 541(c)(2).” In re Yuhas, 104
F.3d at 614. Accordingly, the District Court concluded that
“only a debtor’s beneficial interest in a trust may be excluded
from the bankruptcy estate pursuant to that subsection.” Skiba
v. Gould, 337 B.R. at 74. “In short, in light of the previously
described case law and the clarity of the statutorily described
language, we reject the bankruptcy court’s conclusion that
§ 541(c)(2) encompasses pension plans other than ‘trusts’.” Id.
at 75. A motion for reconsideration was filed in Skiba v. Gould
12
but it was denied. Debtors timely appealed.5
At the same time as the District Court was rendering its
decision, the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, P.L. 109-8, 119 Stat 23 (2005), was
passed. The Act made certain changes to how tax-deferred
annuities are treated with respect to the bankruptcy estate.
While § 541(c)(2) itself was not amended, a new section,
§ 541(b)(7), was added. That section stated, in relevant part,
that “property of the estate does not include”:
(7) any amount--
(A) withheld by an employer from the wages
of employees for payment as contributions--
(i) to--
(I) an employee benefit plan that is
subject to title I of the Employee Retirement
Income Security Act of 1974 [29 USCS §§ 1001
et seq.] or under an employee benefit plan which
5
After its order was reversed by the District Court, the
Bankruptcy Court apparently began to stay resolution of those
cases before it that involved the issue of § 403(b) annuities and
will continue to do so until this case is decided. Appellee’s
Br. 2.
13
is a governmental plan under section 414(d) of the
Internal Revenue Code of 1986 [26 USCS
§ 414(d)];
(II) a deferred compensation plan
under section 457 of the Internal Revenue Code
of 1986 [26 USCS § 457]; or
(III) a tax-deferred annuity under
section 403(b) of the Internal Revenue Code of
1986 [26 USCS § 403(b)]; except that such
amount under this subparagraph shall not
constitute disposable income as defined in section
1325(b)(2) [11 USCS § 1325(b)(2)]; or
(ii) to a health insurance plan regulated by
State law whether or not subject to such title; or
(B) received by an employer from employees
for payment as contributions--
(i) to--
(I) an employee benefit plan that is
subject to title I of the Employee Retirement
Income Security Act of 1974 [29 USCS §§ 1001
et seq.] or under an employee benefit plan which
is a governmental plan under section 414(d) of the
14
Internal Revenue Code of 1986 [26 USCS
§ 414(d)];
(II) a deferred compensation plan
under section 457 of the Internal Revenue Code
of 1986 [26 USCS § 457]; or
(III) a tax-deferred annuity under
section 403(b) of the Internal Revenue Code of
1986 [26 USCS § 403(b)];
except that such amount under this
subparagraph shall not constitute disposable
income, as defined in section 1325(b)(2) [11
USCS § 1325(b)(2)]; or
(ii) to a health insurance plan regulated by
State law whether or not subject to such title;
11 U.S.C. § 541(b)(7) (emphasis added).
Collier on Bankruptcy notes that “[u]nder prior law . . .
the question of whether a debtor’s interest in funds held in a
pension plan was frequently litigated as an issue arising under
section 541(c)(2), the section which excludes from ‘property of
the estate’ funds held in trusts where under applicable
nonbankruptcy law the debtor's interest was inalienable.” 5-541
COLLIER ON BANKRUPTCY-15TH EDITION REV. P 541.22C
15
(footnotes omitted). Collier’s notes that the 2005 amendments
“probably will eliminate much of the need for litigation about
some portions of the funds held in pension and other
welfare-benefit plans, i.e., amounts withheld from wages by
employers for, and amounts received by employers from
employees for payment as, contributions to, enumerated types
of employee-benefit plans.” Id. (footnotes omitted).
DISCUSSION
Debtors argue that the TIAA-CREF annuity is treated as
an express trust under New York law and should be excluded
from the bankruptcy estate. They cite the TIAA-CREF
contract,6 New York state law,7 and various court cases.8 They
6
E.g., App. 79 (“The validity and effect of all right and duties
under the Contract are governed by the laws . . . in force [in
New York].”).
7
E.g., Appellants’ Br. 23 (“Under New York law, a trust
requires four elements: (1) a designated beneficiary; (2) a
designated Trustee, not the beneficiary; (3) a fund or other
identifiable property; and (4) the actual delivery of the fund or
other property to the Trustee with the intention of passing legal
title to the Trustee.”) (citing Matter of Mannara, 785 N.Y.S.2d
274 (N.Y. Sur. Ct. 2004)).
8
E.g., Morter v. Farm Credit Servs., 937 F.2d 354, 358 (7th
Cir. 1991) (“TIAA plan would be enforceable as a spendthrift
trust under state law because, in New York, all express trusts are
16
argue in the alternative that even if their annuity is not a trust,
that § 541(c)(2) applies to accounts tantamount to, or analogous
to, trusts.
Debtors argue that the District Court applied an unduly
restrictive reading of Patterson and the word “trust.” They urge
that Supreme Court has given a “natural reading” to § 541(c)(2)
in Patterson (wherein the Court had referred to a “plan or
trust”), and that courts should interpret § 541(c)(2) to further
Congress’s policy of protecting retirement plans with
enforceable transfer restrictions. Specifically, Debtors argue
that the “Supreme Court in Patterson placed greater emphasis
upon spendthrift trusts’ attributes, i.e., anti-
alienation/assignability, rather than traditional trust concepts of
equitable and legal title, settlor, beneficiary, trustee, and so
forth.” Appellants’ Br. 19.
Debtors also argue that the aims of 26 U.S.C. § 401(a)
and § 403 are aligned such that it does not make sense to refuse
to treat annuities as trusts: “[Section] 403(b) annuities are not
subject to the trust requirements of § 401(a), nor does § 401(f)
require their treatment as qualified trusts; but the transfer
restrictions imposed on such annuities by § 401(g) reach the
same result . . . .” Appellants’ Br. 20.
presumed to be spendthrift unless the settlor expressly provides
otherwise.”).
17
They also argue that affirming the District Court would
“jeopardize the thousands of TIAA-CREF annuities that are not
before this Honorable Court whose recipients depend on same
for their retirement.” Appellants’ Br. 8.9
In response, Skiba contends that § 541(c)(2) requires a
“trust” and that the annuity at issue is not a trust: “An annuity
creates the relationship of debtor to creditor where certain
property is owed under an annuity contract under certain terms
and conditions and later times; it is not a trust and cannot meet
the requirement for exclusion under section 541(c)(2). This
court’s decision in [In re Yuhas] leaves no doubt that a trust is
required.” Appellee’s Br. 6.
Both sides argue that the addition of paragraph (b)(7) to
§ 541 bolsters their position. Skiba asks rhetorically, “Why
would [C]ongress add this provision if exclusion were already
mandated by section § 541(c)(2), which was not changed?”
Appellee’s Br. 13, n.1. Debtors, on the other hand, urge that it
was not Congress’s intent to change the law but to “make
§ 541(c)(2) harmonious with what it had originally intended and
was codifying how the Supreme Court naturally read § 541 in
9
Similarly, Debtors argue that “TIAA-CREF annuities are
proper funding vehicles for tax advantaged retirement plans, and
similar policy reasons that support treating annuity contracts
issued under [§ 401(a)] plans also support the same treatment for
annuity contracts under [§ 403(b)] plans.” Appellants’ Br. 21.
18
[Patterson].” Appellants’ Reply Br. 6-7. It is further argued
that the “additional section was added to eliminate the ambiguity
in the code section as was previously written.” Appellants’
Reply Br. 7. (The parties agree that the new provisions do not
apply retroactively to cover the instant case).
Thus, this case presents a question of statutory
interpretation,10 namely, the meaning of the term “trust,” in
§ 541(c)(2) of the Bankruptcy Code. As this term is not defined
in the Code, and its meaning is not plainly discernible from the
statutory context, we will examine relevant caselaw and
statutory changes in interpreting its meaning.
A. Patterson and Yuhas
We first retrace the trajectory of how § 541(c)(2) has
been interpreted by the Supreme Court in Patterson and by our
Court in Yuhas.
In Patterson, the Supreme Court was faced with an issue
involving § 541(c)(2) and specifically addressed the question of
10
Our Court has jurisdiction pursuant to 28 U.S.C. § 1291 and
reviews the legal determinations by the District Court de novo.
Baroda Hill Inv., Inc. v. Telegroup, Inc. (In re Telegroup, Inc.),
281 F.3d 133, 136 (3d Cir. 2002) (“Because the District Court
sat below as an appellate court, this Court conducts the same
review of the Bankruptcy Court’s order as did the District
Court.”).
19
“whether an antialienation provision contained in an
ERISA-qualified pension plan constitutes a restriction on
transfer enforceable under ‘applicable nonbankruptcy law,’ and
whether, accordingly, a debtor may exclude his interest in such
a plan from the property of the bankruptcy estate.” Patterson,
504 U.S. at 755. Patterson had participated in his company’s
pension plan, a plan which “satisfied all applicable requirements
of the Employee Retirement Income Security Act of 1974
(ERISA) and qualified for favorable tax treatment under the
Internal Revenue Code. In particular, Article 16.1 of the Plan
contained the antialienation provision required for qualification
under § 206(d)(1) of ERISA, 29 U.S.C. § 1056(d)(1).” Id. at
755.
Justice Blackmun, writing for a unanimous court, held
that “[t]he natural reading of [§ 541(c)(2)] entitles a debtor to
exclude from property of the estate any interest in a plan or trust
that contains a transfer restriction enforceable under any
relevant nonbankruptcy law.” Id. at 758 (emphasis added).
After concluding that “applicable nonbankruptcy law” was not
merely limited to state law, the Court next addressed the issue
of whether the antialienation provision contained in the
ERISA-qualified Plan met the requirements of § 541(c)(2). It
wrote:
Section 206(d)(1) of ERISA, which states that
“each pension plan shall provide that benefits
provided under the plan may not be assigned or
20
alienated,” 29 U.S. C. § 1056(d)(1), clearly
imposes a “restriction on the transfer” of a
debtor’s “beneficial interest” in the trust. The
coordinate section of the Internal Revenue Code,
26 U.S. C. § 401(a)(13), states as a general rule
that “[a] trust shall not constitute a qualified trust
under this section unless the plan of which such
trust is a part provides that benefits provided
under the plan may not be assigned or alienated,”
and thus contains similar restrictions.
Id. at 759.
The Court concluded that the provisions in question
satisfied § 541(c)(2) in that the “pension plan complied with
these requirements.” Id. The Court did not discuss whether the
pension plan at issue constituted a “trust” under the terms of
§ 541(c)(2), and seems to have expanded the type of legal
instruments protected by § 541(c)(2) by referring to “any
interest in a plan or trust.” Id. at 758 (emphasis added).11
The Court noted that “[p]etitioner first contends that
11
In re Barnes, 264 B.R. 415, 421 (Bankr. E.D. Mich. 2001)
(noting that in resolving the issue of whether ERISA is
applicable nonbankruptcy law, the Supreme Court in Patterson
“may have created a new one -- namely, whether the statute
applies to non-trust interests”).
21
contemporaneous legislative materials demonstrate that
§ 541(c)(2)’s exclusion of property from the bankruptcy estate
should not extend to a debtor’s interest in an ERISA-qualified
pension plan.” Id. at 761. The Court wrote that in his brief
“petitioner quotes from House and Senate Reports
accompanying the Bankruptcy Reform Act of 1978 that
purportedly reflect ‘unmistakable’ congressional intent to limit
§ 541(c)(2)’s exclusion to pension plans that qualify under state
law as spendthrift trusts. . . . These meager excerpts reflect at
best congressional intent to include state spendthrift trust law
within the meaning of ‘applicable nonbankruptcy law.’” Id. at
761-62.
Thus, Patterson does not opine as to the meaning of
“trust,” but it does employ language that could be interpreted to
mean that § 541(c)(2) is not limited to literal trusts or trusts
formed explicitly. “Curiously absent from the Supreme Court’s
decision is any discussion of § 541(c)(2)’s trust requirement.
And on occasion the Court seems unaware of the requirement.”
In re Barnes, 264 B.R. 415, 421 (Bankr. E.D. Mich. 2001).
In Yuhas we addressed the applicability of § 541(c)(2) to
an Individual Retirement Account (“IRA”) formed under New
Jersey law, and, in deciding the case, we parsed the
requirements of § 541(c)(2) set forth in Patterson. 104 F.3d at
612. As we stated, “[t]he issue in this appeal is whether a New
Jersey statute, N.J.S.A. § 25:2-1(b), that protects a qualified
individual retirement account (IRA) from claims of creditors
22
constitutes a ‘restriction on the transfer of a beneficial interest
of the debtor in a trust’ within the meaning of 11 U.S.C.
§ 541(c)(2) and thus results in the exclusion of the IRA from a
bankruptcy estate.” Id. at 613. We found that “if the debtor’s
IRA meets all of the requirements of § 541(c)(2), we must hold
that it is completely excluded from the bankruptcy estate.”
Id. at 614.
We stated that the requirements of § 541(c)(2) were:
“(1) the IRA must constitute a ‘trust’ within the meaning of 11
U.S.C. § 541(c)(2); (2) the funds in the IRA must represent the
debtor’s ‘beneficial interest’ in that trust; (3) the IRA must be
qualified under Section 408 of the Internal Revenue Code;
(4) the provision of N.S.J.A. § 25:2-1 stating that property held
in a qualifying IRA is ‘exempt from all claims of creditors’ must
be a ‘restriction on the transfer’ of the IRA funds; and (5) this
restriction must be ‘enforceable under nonbankruptcy law.’” Id.
Yuhas turned solely on prong four; the parties conceded
that prong one was met and thus while Yuhas provides the
overall framework for applying § 541(c)(2) it did not address
what constituted a trust for purposes of the statute.12 Contrary
12
Debtors contend that the fact that the IRA was held to be
excluded in Yuhas means that “it logically follows that the
annuity and trust accounts in the TIAA-CREF retirement
accounts should also be excluded since IRAs have traditionally
been the easiest retirement vehicle through which bankruptcy
23
to Skiba’s position before us in this case, we did not decide in
Yuhas what satisfied § 541(c)(2)’s “trust” requirement. In short,
neither the Bankruptcy Code nor our applicable federal
jurisprudence specifically defines “trust” for the purposes of
§ 541(c)(2).
The Debtors urge that accordingly we should look to state
law–here, New York law. In discussing prong five of the test in
Yuhas–whether the New Jersey law at issue was a “restriction .
. . enforceable under applicable nonbankruptcy law,”
§ 541(c)(2)–we stated that “[a]pplicable nonbankruptcy law
includes both federal law such as ERISA, and state law.” In re
Yuhas, 104 F.3d at 614 n.1 (citation omitted). Moreover, trusts
are by nature created and defined by state law. See Barnes, 264
B.R. at 429-30 (“The Code does not contain a definition of the
term ‘trust.’ But its traditional and common meaning is neither
controversial nor mysterious . . . .”). In light of the inclusion of
state law under “applicable nonbankruptcy law” and the fact that
trusts are creatures of state law, we look to New York law in this
Trustees have been able to access to said accounts. . . .
Accordingly, [because] the least protective of retirement
accounts found protection in the Court’s decision, it follows that
other retirement accounts which previously maintained greater
protection within the courts should continue said protection.”
Appellants’ Reply Br. 3. This may be a good argument insofar
as it frames the account in question as one subject to stringent
restrictions, but it does not help Debtors show why as a textual
matter the annuity should be considered a trust.
24
case in determining whether the annuity is a trust.
B. A Trust under New York Law
“To create a valid trust under the law of [New York ]
State four essential elements must be proved: (1) a designated
beneficiary, (2) a designated trustee, who is not the same person
as the beneficiary, (3) a clearly identifiable res, and (4) the
delivery of the res by the settlor to the trustee with the intent of
vesting legal title in the trustee.” Agudas Chasidei Chabad
of U.S. v. Gourary, 833 F.2d 431, 433-34 (2d Cir. 1987). “A
trust may be created orally or in writing, and no particular form
of words is necessary.” Id. at 434. With respect to those
requirements, Debtors claim:
(1) Gannon University is the settlor of a trust that
funds its basic retirement plan through the
purchase of a TIAA-CREF retirement annuity,
with its employees, such as the Debtor, the
designated beneficiaries; (2) TIAA[-CREF]
serves as the trustee by accepting premium
payments that it invests within the parameters of
the annuity plan; (3) the funds contributed by
Gannon University and its employees, including
the debtor, are the trust res; and (4) Gannon
University delivers the contributions to TIAA-
CREF to hold, invest, manage and distribute
pursuant to the terms of the annuity contract.
25
Appellants’ Br. 24.
The parties do not cite, and we have not found, a case by
a New York court which states explicitly whether an annuity of
this kind would be treated as a trust under New York law.
Debtors rely on Alexandre v. Chase Manhattan Bank, N.A.,
61 A.D.2d 537 (N.Y. App. Div. 1978), a case in which an ex-
spouse sought “recovery of the accumulated premiums paid for
the purchase of the [TIAA-CREF] annuity contracts, or in the
alternative . . . appointment as receiver and to have the annuity
immediately paid over to her.” Id. at 540. Debtors cite
Alexandre because it held that the monies “paid under the
annuity contract are neither conditional nor refundable and the
judgment debtor has no ‘interest’ in them.” Id. Thus, Debtors
imply, the annuitant’s interest was a trust because the annuitant
had only an equitable interest in the trust estate.
Despite the fact that Alexandre (and a subsequent case,
Aurora G. v. Harold G., 414 N.Y.S.2d 632 (N.Y. Fam. Court
1979)) did not state explicitly that TIAA-CREF annuities were
spendthrift trusts, some courts have referred to those cases and
New York’s restrictions on TIAA-CREF annuity alienability in
holding that TIAA-CREF annuities are trusts for purposes of
§ 541(c)(2). See, e.g., In re Montgomery, 104 B.R. 112, 118 n.8
(Bankr. N.D. Iowa. 1989) (“[Alexandre and Aurora G.] do not
appear to actually use the term ‘spendthrift trust’ anywhere in
the opinions. The substance of the decisions, however, leads the
Court to conclude that the New York courts considered the
26
TIAA/CREF plans to be spendthrift trusts.”).
A variety of other courts have followed this approach.
See, e.g., Morter v. Farm Credit Servs., 937 F.2d 354, 357
(7th Cir. 1991) (“[I]n every decision we could find that
addressed the very pointed question whether TIAA is a
spendthrift trust under New York law, the answer was a
resounding ‘yes.’”); In re Reynolds, 1989 Bankr. LEXIS 2719,
at *11-12 (Bankr. W.D. Ark. 1989) (“This Court, as did the New
York courts in Aurora G. and Alexandre and the bankruptcy
courts in Montgomery and Braden, holds that the CREF
certificate, because of the language in the New York statute, is
a spendthrift trust.”); In re Woodward, 1988 Bankr. LEXIS
2683, at *7 (Bankr. W.D. Ky. 1988) (“Under New York law, the
provisions of the TIAA-CREF documents effectively restrict the
debtor/beneficiary’s ability to transfer his interest in the
accounts and also preclude the beneficiary's creditors from
reaching the funds. This Court finds that the contracts are valid
spendthrift trusts for purposes of Section 541(c)(2).”).
We join these courts in holding that under New York law
an employer-mandated retirement plan such as this one
constitutes a trust. Gannon has parted with the res, intending
that it be held by TIAA-CREF for Laher’s benefit. TIAA-CREF
has been entrusted with the res, is managing it for Laher’s
benefit, and Laher will receive the funds upon retirement. The
requirements of New York law have been met here and the
operation of the account as an annuity does not take the account
27
out of the definition of a trust or § 541(c)(2).
While Skiba contends that the annuity is best understood
not as a trust but as the subject of a debtor-creditor relationship,
Appellee’s Br. 6, we find that argument unpersuasive. The fact
that the relationship between Laher, Gannon, and TIAA-CREF
can be cast, in part, as debtor-creditor or as a contractual
relationship has no bearing on the trust analysis under New
York law. As noted, that analysis looks to the presence of a
designated beneficiary, a trustee different from the beneficiary,
a clearly identifiable res, and the delivery of the res by the
trustor to the trustee with the requisite intent. All of those
elements are present here. All trusts can be described as
contractual relationships insofar as the obligations of all the
parties are set forth in an agreement, and the trustee can be
described as a debtor to the beneficiary creditor under a trust.
However, describing them as such does not mean they are not
trusts. See RESTATEMENT (SECOND) OF TRUSTS, § 197 cmt. b
(“The creation of a trust is conceived of as a conveyance of the
beneficial interest in the trust property rather than as a
contract.”). We do not view the framing of the relationship as
“debtor-creditor” to be helpful to the inquiry at hand.
Two additional factors inform our interpretation of New
York law and § 541(c)(2). The first is that Patterson analyzed
§ 541(c)(2) in a manner that presumed a “natural reading” of
§ 541(c)(2), not limiting the universe of excluded funds to those
explicitly labeled “trusts.” New York law looks to the features
28
of the fund and its creation–the existence of a beneficiary, a
designated trustee, a clearly identifiable res, and the donative
intent–not merely the label affixed to the fund. See Gourary,
833 F.2d at 433-34. Similarly, Patterson’s emphasis on the
nature of the restrictions on the fund reflects a textured
interpretation of § 541(c)(2). The inquiry Patterson conceives
of focuses on the nature of the fund, not the label, and we adhere
to that approach.
The second factor which convinces us that the annuity at
issue here is excluded from the estate is that the newly enacted
legislation referred to above–legislation that does not apply to
Laher’s case–excludes annuities such as these from the
bankruptcy estate.
As noted, the 2005 Bankruptcy Act Amendments did not
amend § 541(c)(2) but did add § 541(b)(7) which created
protection for annuities. That provision states that the property
of the estate does not include “any amount . . . withheld by an
employer from the wages of employees for payment as
contributions . . . to . . . a tax-deferred annuity under section
403(b) of the Internal Revenue Code of 1986,” as well as “any
amount . . . received by an employer from employees for
payment as contributions . . . to . . . a tax-deferred annuity under
section 403(b) of the Internal Revenue Code of 1986.”
§ 541(b)(7)(A)-(B). While we acknowledge that reasonable
minds could differ as to the inference to be drawn from this
amendment, we see no reason why we should hold that the
29
annuity interest held by this debtor is included in his estate,
when we know that the very same annuity, held by an annuitant
who files after October 17, 2005, is not.
As we find that this is a trust under New York law, we
need not reach the question of whether § 541(c)(2) includes
trust-like accounts tantamount or analogous to a trust.13 We note
that some courts (including the Bankruptcy Court in the instant
case) have held that § 541(c)(2) does not require a trust, but
rather simply requires a fund be tantamount to a trust or be
encumbered by restrictions analogous to those imposed on a
trust. See, e.g., Morter v. Farm Credit Servs., 937 F.2d 354, 357
(7th Cir. 1991) (“Even in cases in which courts have included
retirement plans within the bankruptcy estate, there has been a
willingness to exclude the plan if it is employer-created and
controlled and, therefore, analogous to a spendthrift trust.”)
(citing cases); In re Quinn, 327 B.R. 818, 829 (Bankr. W.D.
Mich. 2005) (listing features that render annuity “functionally
indistinguishable from a spendthrift trust” and excluding it from
the estate under § 541(c)(2)).
13
We also note that some courts have held that the CREF
account constitutes a trust but the TIAA account did not. For
example, the Court in Barnes excluded the CREF account from
the bankruptcy estate but not the TIAA account. 264 B.R.
at 434. We eschew this approach because it fails to properly
focus on the trustor’s intent, which was the same for both
funding vehicles.
30
Meanwhile, other courts have rejected this approach.
See, e.g., In re Adams, 302 B.R. 535, 539 (B.A.P. 6th Cir. 2003)
(“[O]nly an interest in a trust can be the subject of an
enforceable transfer restriction within the meaning of 11 U.S.C.
§ 541(c)(2).”); Barnes, 264 B.R. at 428 (rejecting Morter’s
“[apparent] proposition that an employee benefit plan need not
be a trust at all: So long as the plan has an enforceable transfer
restriction and is designed to function in a manner ‘analogous’
to a spendthrift trust, the debtor’s interest therein will be
excluded from the bankruptcy estate pursuant to § 541(c)(2).”).
The annuity here clearly fits within the concept of “trust”
in § 541(c)(2). We necessarily leave for another day the
question of whether the word “trust” as used in § 541(c)(2) may
be read in light of Patterson to include a category of funds
tantamount or analogous to trusts.
CONCLUSION
For the reasons set forth above, we will reverse the order
of the District Court. The case will be remanded to the
Bankruptcy Court for entry of an order excluding the annuity
from the bankruptcy estate and for proceedings consistent with
this Opinion.
31