5. Pensions or retirement plans
Notwithstanding any anti-alienation clause that may be found in a pension or retirement plan, the majority rule is that tax liens and levies attach to such assets at least to the extent that they are debtor's property under applicable state law432.
As a general rule, any taxing entity attempting to levy on a pension plan is subject to the rule that the taxing entity steps into the shoes of the taxpayer; if the taxpayer cannot reach the asset, neither can the levy. Held, the California Franchise Tax Board could not levy against an ERISA qualified pension plan for payment of delinquent state income taxes; ERISA's anti-alienation provisions trumped state tax collection policy Retirement Fund Trust v. Franchise Tax Board, 909 F.2d 1266 (9th cir. 1990).
Although IRS levy powers typically include the right to levy on various categories of retirement and pension plans, as a general rule IRS collection activity policies discourage levy on social security, veterans pension plans, benefits under the GI Bill of Rights, disability benefits, and similar income.
The IRS asserts it has a right to levy on a 401(k) -
" ... when the taxpayer has an immediate right to elect normal retirement benefits. However, the Service may not force the plan administrator to immediately distribute any assets pursuant to the Service's levy until the taxpayer obtains an immediate right to commence receipt of benefits under the plan."433
The IRS may levy on pension plan benefits as they are paid out (i.e. once the account is in "pay status"). Shanbaum v. United States, 94-2 USTC Para 50,512. However, the IRS ordinarily may not levy on the corpus of a pension fund if the employee does not have the right to access the funds in a lump sum IRM 536(14).5(1). And a levy may not attach to ERISA pension payments until the taxpayer has a right to receive such payments, that is, until the retirement plan reaches "pay status";
For a levy to attach funds in a pension or retirement plan, the taxpayer must have an unqualified, unconditional right to demand payment from the plan. The levy only attaches the taxpayer's present right. If the taxpayer's only present right in the plan is a right to receive payments in the future, the Service is not presently entitled to receive any amounts for the levy.434
And, where the taxpayer is required to contribute to the plan and does not have a present right to benefits, it is deemed to have no equity. With regard to such pension...
