Friday, August 19, 2016

Forfeiture of employee retirement contributions made to a New York State public retirement system


Forfeiture of employee's retirement contributions made to a New York State public retirement system
United States v. Stevenson, USCA, 2ndCircuit, Docket 14-1862

Article V, §7 of the New York State Constitution, sometimes referred to as the “Nonimpairment Clause,” provides, in relevant part, that: “membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.” Such systems are "defined benefit" retirement plans.

One of the issues in the Stevenson case was whether Article V, §7 barred a federal district court from directing the forfeiture of an employee's contributions to a New York State public retirement system* as a "substitute asset."

Eric Stevenson, a former Member of the New York State Assembly, was convicted of accepted three bribes in 2012 and 2013 in the total amount of $22,000 in return for various actions to promote certain adult daycare centers including proposing legislation to the New York State Legislature that would have imposed a moratorium on new adult daycare centers, thus favoring certain interested parties.

The jury found Stevenson guilty on all counts and the Federal District Court judge hearing the case, among other things, entered a preliminary order of forfeiture of Stevenson's assets in the amount of $22,000, representing the amount of the bribes. A final judgment, entered on May 23, 2014, including an order of forfeiture that provided, as a substitute asset for forfeiture purposes, “[a]ny and all contributions, funds, benefits, rights to disbursements, or other property held on behalf of, or distributed to, Eric Stevenson, by the New York State and Local Retirement System, … and all property traceable thereto”** up to $22,000.

Stevenson appealed and with respect to the court's “order of forfeiture,” he contended that identifying his pension plan employee contributions as a substitute asset and permitting seizure up to the amount of $22,000 by the Government was error as those contributions were protected by Article V, Section 7 of the New York State Constitution, which, in pertinent part, provides that such a plan’s benefits “shall not be diminished or impaired.”

The Circuit Court of Appeals disagreed and affirmed the lower court’s ruling with respect to the forfeiture of assets and its designating Stevenson's contributions to the Retirement System a substitute asset for purposes of paying the $22,000 penalty imposed by the court.

The court explained that to the extent that there is "a conflict between New York law providing that the employee's pension  is not to be 'diminished or impaired,' and federal law, which authorizes forfeiture 'irrespective of any provision of State law,' of any property derived from the crime of conviction, [see 21 U.S.C. §853(a)], and, where such property cannot be located or has been transferred, of ‘any other property of the defendant’ in the same amount,” Article V, §7 of the New York State Constitution “is preempted to the extent that it would prevent forfeiture of Stevenson’s contributions to or benefits from a state pension or retirement system up to $22,000, the amount ordered forfeited.”

The Circuit Court then affirmed the lower court’s decision, including the sentence imposed, the forfeiture order, and the order identifying substitute assets by the district court.”

In Matter of D'Agostino v DiNapoli, 24 Misc 3d 1090, one of the relatively few State court decisions that consider the extent of the protections provided by Article V, §7 of New York State Constitution's, the court said that Article V, §7 “merely provides that retirement system benefits are contractual in nature and may not be impaired or diminished by state action. Further, said the court, “Such guarantee does not render an individual retirement system member's benefits inviolate.” Rather, the court, citing Matter of Village of Fairport v Newman, 90 AD2d 293, leave to appeal denied 58 NY2d 1112, said "[t]he purpose of the constitutional provision is 'to insure that pension and retirement benefits [are not] subject to the whim of the Legislature or the caprice of the employer.”

Further, explained the D’Agostino court, “[t]here is no constitutional violation unless the contractual benefits are unilaterally diminished,” presumably as a result of an action by the State Legislature, the State or a political subdivision of the State to truncate a retirement allowance otherwise payable, citing Rosen v New York City Teachers' Retirement Bd., 282 App Div 216,  affd 306 NY 625, and Delaney v Regan, 183 AD2d 981.

* The State University’s Optional Retirement Plan, established pursuant to Article 8-B of the Education Law [and similar defined contribution retirement plans established by law] is not a public retirement systems of the State and, as indicated in §396 of the Education Law, the “Employer [is] not liable for [the] payment of benefits.”

** Stevenson did not have sufficient “years of member service” in the Retirement System to have become a “vested” member of the System but the Federal District Court said that he was entitled to a refund of the “member contributions” that he had made as a member of the System.

The Stevenson decision is posted on the Internet at:

Handbooks focusing on State and Municipal Public Personnel Law continue to be available for purchase via the links provided below:

The Discipline Book at http://thedisciplinebook.blogspot.com/

Challenging Adverse Personnel Decisions at http://nypplarchives.blogspot.com

The Disability Benefits E-book: at http://section207.blogspot.com/

Layoff, Preferred Lists at http://nylayoff.blogspot.com/

Caution:

Subsequent court and administrative rulings, or changes to laws, rules and regulations may have modified or clarified or vacated or reversed the decisions summarized here. Accordingly, these summaries should be Shepardized® or otherwise checked to make certain that the most recent information is being considered by the reader.

THE MATERIAL ON THIS WEBSITE IS FOR INFORMATION ONLY. CHANGES IN LAWS, RULES, REGULATIONS AND NEW COURT AND ADMINISTRATIVE DECISIONS MAY AFFECT THE ACCURACY OF THE INFORMATION PROVIDED IN THIS LAWBLOG. THE MATERIAL PRESENTED IS NOT LEGAL ADVICE AND THE USE OF ANY MATERIAL POSTED ON THIS WEBSITE DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP.

Consistent with the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations, the material in this blog is presented with the understanding that the publisher is not providing legal advice to the reader and in the event legal or other expert assistance is needed, the reader should seek such advice from a competent professional.

Items published in NYPPL may not be used for commercial purposes without prior written permission to copy and distribute such material. Send your request via e-mail to publications@nycap.rr.com

Copyright© 1987 - 2017 by the Public Employment Law Press.



___________________



N.B. From time to time a political ad or endorsement may appear in the sidebar of this Blog. NYPPL does not have any control over such posting.

_____________________

.