Source: http://caselaw.findlaw.com/us-supreme-court/544/320.html
Timestamp: 2017-02-27 10:15:12
Document Index: 760034682

Matched Legal Cases: ['§522', '§522', '§522', '§522', '§408', '§408', '§408', '§408', '§72', '§219', '§408', '§408', '§408', '§522', '§522', '§522', '§522', '§522', '§522', '§522', '§522', '§522', '§522', '§72', '§522']

ROUSEY v. JACOWAY [03-1407] | FindLaw
ROUSEY v. JACOWAY [03-1407]
ROUSEY et ux. v. JACOWAY, (2005)
Argued: December 1, 2004 Decided: April 4, 2005
Several years after petitioners deposited distributions from their pension plans into Individual Retirement Accounts (IRAs), they filed a joint petition under Chapter 7 of the Bankruptcy Code. They sought to shield portions of their IRAs from their creditors by claiming them as exempt from the bankruptcy estate under 11 U. S. C. §522(d)(10)(E), which provides, inter alia, that a debtor may withdraw from the estate his "right to receive ... a payment under a stock bonus, pension, profitsharing, annuity, or similar plan or contract on account of ... age." Respondent Jacoway, the Bankruptcy Trustee, objected to the Rouseys' exemption and moved for turnover of the IRAs to her. The Bankruptcy Court sustained her objection and granted her motion, and the Bankruptcy Appellate Panel (BAP) agreed. The Eighth Circuit affirmed, concluding that, even if the Rouseys' IRAs were "similar plans or contracts" to the plans specified in §522(d)(10)(E), their IRAs gave them no right to receive payment "on account of age," but were instead savings accounts readily accessible at any time for any purpose. Held: The Rouseys can exempt IRA assets from the bankruptcy estate because the IRAs fulfill both of the §522(d)(10)(E) requirements at issue here--they confer a right to receive payment on account of age and they are similar plans or contracts to those enumerated in §522(d)(10)(E). Pp. 4-14.
Petitioners Richard and Betty Jo Rousey were formerly employed at Northrup Grumman Corp. At the termination of their employment, Northrup Grumman required them to take lump-sum distributions from their employer-sponsored pension plans. In re Rousey, 283 B. R. 265, 268 (Bkrtcy. App. Panel CA8 2002); Brief for Petitioners 2. The Rouseys deposited the lump sums into two IRAs, one in each of their names. 283 B. R., at 268. The Rouseys' accounts qualify as IRAs under a number of requirements imposed by the Internal Revenue Code. Each account is "a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries." 26 U. S. C. §408(a) (2000 ed. and Supp. II). The Internal Revenue Code limits the types of assets in which IRA-holders may invest their accounts, §§408(a)(3), (a)(5), and provides that the balance in IRAs is nonforfeitable, §408(a)(4). It also caps yearly contributions to IRAs. §408(o)(2). Withdrawals made before the accountholder turns 5912 are, with limited exceptions, subject to a 10 percent tax penalty. §72(t). IRA contributions receive favorable tax treatment. In particular, the Internal Revenue Code generally defers taxation of the money placed in IRAs and the income earned from those sums until the assets are withdrawn. See §219(a) (contributions to IRAs are tax deductible); §408(e)(1) (IRA is tax exempt). Moreover, within a certain timeframe accountholders can, as the Rouseys did here, roll over distributions received from other retirement plans. §408(a)(1). The Internal Revenue Code encourages such rollovers by making them nontaxable. §§408(d)(3), 402(c)(1), 403(b)(8), and 457(e)(16).
The Rouseys again appealed and the Court of Appeals for the Eighth Circuit affirmed. The Court of Appeals concluded that, even if the Rouseys' IRAs were " 'similar plans or contracts' " to stock bonus, pension, profitsharing, or annuity plans, their IRAs gave them no right to receive payment " 'on account of age.' " In re Rousey, 347 F. 3d 689, 693 (2003). Like the BAP, the Court of Appeals reasoned that the Rouseys' right to payment was conditioned neither on age nor on any of the other statutory factors. Their IRAs were instead "readily accessible savings accounts of which the debtors may easily avail themselves (albeit with some discouraging tax consequences) at any time for any purpose." Ibid. The Court of Appeals recognized that several of its sister Circuits had reached a contrary result. Ibid. See In re Brucher, 243 F. 3d 242, 243-244 (CA6 2001); In re McKown, 203 F. 3d 1188, 1190 (CA9 2000); In re Dubroff, 119 F. 3d 75, 78 (CA2 1997); In re Carmichael, 100 F. 3d 375, 378 (CA5 1996). We granted certiorari to resolve this division among the Courts of Appeals regarding whether debtors can exempt IRAs from the bankruptcy estate under 11 U. S. C. §522(d)(10)(E). 541 U. S. 1085 (2004).
We turn first to the characteristics the specific plans and contracts listed in §522(d)(10)(E) share. The Bankruptcy Code does not define the terms "profitsharing," "stock bonus," "pension," or "annuity." Accordingly, we look to the ordinary meaning of these terms. United States v. LaBonte, 520 U. S. 751, 757 (1997); Perrin v. United States, 444 U. S. 37, 42 (1979). A "profitsharing" plan, of course, is "[a] system by which employees receive a share of the profits of a business enterprise." Am. Hert. 1045.5 Profitsharing plans may provide deferred compensation, but they may also be "cash plans" in which a predetermined percentage of the profits is distributed to employees at set intervals. J. Langbein & B. Wolk, Pension and Employee Benefit Law 48 (3d ed. 2000). A stock bonus plan is like a profitsharing plan, except that it distributes company stock rather than cash from profits. Id., at 49.6 A pension is defined as "a fixed sum ... paid under given conditions to a person following his retirement from service (as due to age or disability) or to the surviving dependents of a person entitled to such a pension." Webster's 3d 1671.7 Finally, an annuity is "an amount payable yearly or at other regular intervals ... for a certain or uncertain period (as for years, for life, or in perpetuity)." Id., at 88.8 The common feature of all of these plans is that they provide income that substitutes for wages earned as salary or hourly compensation. This understanding of the plans' similarities comports with the other types of payments that a debtor may exempt under §522(d)(10)--all of which concern income that substitutes for wages. See, e.g., §522(d)(10)(A) ("social security benefit, unemployment compensation, or a local public assistance benefit"); §522(d)(10)(B) ("a veterans' benefit"); §522(d)(10)(C) ("disability, illness, or unemployment benefit"); §522(d)(10)(D) ("alimony, support, or separate maintenance"). But the plans are dissimilar in other respects: Employers establish and contribute to stock bonus, profitsharing, and pension plans or contracts, whereas an individual can establish and contribute to an annuity on terms and conditions he selects. Moreover, pension plans and annuities provide deferred payment, whereas profitsharing or stock bonus plans may or may not provide deferred payment. And while a pension provides retirement income, none of these other plans necessarily provides retirement income. What all of these plans have in common is that they provide income that substitutes for wages.
These exceptions are limited in amount and scope. Even with these carveouts, an early withdrawal without penalty remains the exception, rather than the rule. And as we explained in discussing the "on account of" requirement, withdrawals from other retirement plans receive similar tax treatment. Our conclusion that the Rouseys' IRAs can be exempt under 11 U. S. C. §522(d)(10)(E) finds support in clauses (i)-(iii) of §522(d)(10)(E). These clauses bring into the estate certain rights to payment that otherwise would be exempt under §522(d)(10)(E). They provide that a right to receive payment cannot be exempt if: "(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor's rights under such plan or contract arose;
"(ii) such payment is on account of age or length of service; and " (iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b) or 408 of the Internal Revenue Code of 1986."
FOOTNOTESFootnote 1 See Amromin & Smith, What Explains Early Withdrawals from Retirement Accounts? Evidence From a Panel of Taxpayers, 56 National Tax Journal 595, 602 (Sept. 2003) (Table 1) (3.4 percent of IRA holders took penalized withdrawals in 1996); In re Cilek, 115 B. R. 974, 988, n. 15 (Bkrtcy. Ct. WD Wis. 1990) ("[O]f the $6,457,306,674 deposited in IRAs in the nation's credit unions, only 1.2% was withdrawn early and suffered a tax penalty during 1987, and only 1.27% was withdrawn during 1988"); see also Sabelhaus, Projecting IRA Balances and Withdrawals, 20 Employee Benefit Research Institute Notes 1, 3 (May 1999) (finding that "[t]he pattern in both [1993 and 1996] suggests infrequent withdrawals from IRAs" by those under 5912 and noting the consistency of this pattern with the view that the penalty "has a big impact on withdrawal behavior").
Footnote 2 We need not and do not reach the question whether penalties of less than 10 percent or of a fixed amount would also be a sufficient barrier to early withdrawal. Footnote 3 The Rouseys are entitled to penalty-free distributions because of factors apart from age in certain circumstances. See 26 U. S. C. §§72(t)(2)(A)(ii)-(iv) (permitting penalty-free distributions due to the death of or disability of the IRA-holder, or as substantially equal periodic payments for the life expectancy of the accountholder); 72(t)(2)(B) (medical expenses); 72(t)(2)(D)-(F) (health insurance premiums, certain higher education expenses, and first-time home purchase). But these circumstances are confined to specific and narrow uses. See infra, at 12-13. Thus, that there are other circumstances in which the Rouseys can receive payment does not change our conclusion that they have a right to payment on account of age, for these exceptions do not undermine the fact that they cannot obtain unrestricted use of their funds until age 59. Moreover, §522(d)(10)(E) requires that the right to payment be on account of age--not that it be solely on account of this factor. Footnote 4 O'Gilvie v. United States, 519 U. S. 79 (1996), and Commissioner v. Schleier, 515 U. S. 323 (1995), upon which Jacoway relies, Brief for Respondent 17-19, are consistent with our conclusion that petitioners' IRAs satisfy the statute's "on account of" requirement. Those cases involved the meaning of the phrase "on account of" in a tax provision that permitted the exclusion from income of damages received " 'on account' of personal injuries." O'Gilvie, supra, at 81 (emphasis deleted); Schleier, supra, at 329. In both cases, we rejected the claim that damages that were punitive in nature were on account of personal injuries, since such damages did not compensate for the personal injuries. O'Gilvie, supra, at 83-84; Schleier, supra, at 331-332. In so holding in O'Gilvie, we expressly rejected a "but for" causation reading of the statute. See 519 U. S., at 82-83. We instead concluded, as we have here, that the phrase "on account of" means " 'by reason of[, or] because of.' " Id., at 83.
Footnote 5 See also 12 Oxford English Dictionary 580 (2d ed. 1989) (OED) ("[T]he sharing of profits, spec. between employer and employed"); Webster's 3d 1811 ("[A] system or process under which employees receive a part of the profits of an industrial or commercial enterprise").
Footnote 6 See also id., at 2247 (defining "stock bonus" as "a bonus paid to corporation executives and employees in shares of stock").
Footnote 7 See also Am. Hert. 970 ("sum of money paid regularly as a retirement benefit or by way of patronage").
Footnote 8 See also id., at 54 ("[T]he annual payment of an allowance or income"; "[t]he interest or dividends paid annually on an investment of money"); 1 OED 488 ("[a] yearly grant, allowance, or income," or "[a]n investment of money, whereby the investor becomes entitled to receive a series of equal annual payments, which, except in the case of perpetual annuities, includes the ultimate return of both principal and interest").
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