Garnishment of Social Security Benefits from Recipient’s Bank Account vs. Garnishment of Retiree’s Pension Benefits from Retiree’s Bank Account

As an asset protection planning attorney, it is interesting how often other attorneys ask me about the exposure of their clients’ social security and pension monies to creditors’ claims. The frequency is probably directly correlated to the fact that social security benefits and pension benefits are ubiquitous and so the question comes up all the time. While the law is clear on the debtors’ and creditors’ rights in these situations, unless the attorney practices in the asset protection planning arena, he or she may not be aware of the specific rules. Therefore, a brief summary may be helpful to the readers of my blog.

As a general rule, neither social security benefits nor pension benefits can be attached, seized or garnished at the payor level. In other words, service of a garnishment upon the Social Security Administration or the XYZ Company’s Salaried Employee’s Pension Plan (or 401(k) Plan) will be unsuccessful as both Social Security law and ERISA (governing qualified plans) preclude execution, levy, attachment, garnishment or other legal process against a person’s right to payment of benefits. However, that is where the parallel stops.

The law governing social security benefits (42 USC §407(a)) states that “…none of the money paid or payable shall be subject to execution, levy, attachment…” Thus, not only is money payable protected from creditors, but also protected is money already paid and perhaps sitting in the recipient’s bank account. See Whitwood, Inc. v. S. Blvd. Prop. Mgmt. Co., 265 Mich App. 651 (2005) and Detroit Metropolitan Credit Union v. Elliot R. Schore and Bank of America, Wayne Circuit Court, LC No. 10-005743-CK (unpublished) (May, 2014). So, to insure the greatest protection for your client’s social security benefits, have them paid into a bank account established by your client where no other deposits will be made.

In contrast, pension benefits once received and under the control of the recipient are probably not protected from a creditor’s claim. See MCL §38.1683. Although this statute is specifically applicable to public employee retirement systems, the intent of the legislature is clear. Only benefits payable, not already received, are subject to protection against creditors. Correspondingly, under ERISA, there is no similar language to the social security law where benefits already paid are protected.

Planning tip: if your debtor client has both social security and pension monies, make sure the client spends down the pension money first and thereafter spends the social security benefits only if needed (since the social security benefits can otherwise grow in a segregated bank account with total protection from creditor claims).