The Second Circuit first addressed the interplay between the Mandatory Victims Restitution Act (MVRA) and ERISA's anti-alienation provision (29 U.S.C. § 1056(d)(1)). Under the MVRA, "[n]otwithstanding any other Federal law. . . a judgment imposing a fine may be enforced against all property or rights to property of the person fined" unless an exemption applies (18 U.S.C. § 3613(a)). Relying on this statutory language, the court concluded that restitution orders could be enforced through garnishment of funds otherwise covered by ERISA's anti-alienation provision. In reaching this conclusion, the court reasoned that:

The court also relied on the statutory context, noting that the MVRA explicitly exempts the following federal pension payments:

Each of the statutes governing these pension payments contains anti-alienation provisions. In the court's view, the fact that Congress expressly exempted these statutory pensions, despite their anti-alienation provisions, indicated that the anti-alienation provisions did not, by themselves, prevent the payments from being subject to garnishment. Accordingly, ERISA's anti-alienation provision did not protect ERISA-covered funds from garnishment.

The Second Circuit also noted that courts have found that restitution orders may be enforced in the same manner as tax levies (which are enforceable against ERISA funds).

Regarding the extent of the government's interest in the participant's 401(k) accounts, the court applied principles from the tax levy context and determined that the government had the same right to the 401(k) accounts as the participant.

The court next turned to the question of whether the participant, and therefore the government, had the right to withdraw lump sums from the 401(k) accounts.

Regarding the Fried Frank Plan, the participant argued that the plan language prohibited distributions until he reached age 62, unless he made an election within 180 days of termination. Rejecting this argument, the court concluded that, under the plan language, the participant's right to withdraw his account balance accrued upon his separation from employment. According to the court, the plan language relied on by the participant did not affect the participant's right to withdraw funds from the account at any time after separation from employment. Instead, it prevented the plan administrator from unilaterally distributing the participant's funds until he reached age 62, unless he consented to an earlier distribution.

The court also rejected the participant's argument that the Katten Plan provisions requiring participants to apply for a distribution and follow certain procedures meant that the participant did not have a unilateral right to receive payments. As the court noted, the case relied on by the participant involved spousal consent concerns not at issue in this case. The court concluded that the plan language clearly stated that the participant had a right to withdraw up to the entire value of his account. The fact that he had to follow the plan's procedures for requesting payment did not limit this right.

Finally, the court disagreed with the participant's argument that the district court erred by not considering the Katten Plan's summary plan description (SPD), which purportedly prevented him from withdrawing funds until age 59 ½. The SPD provision at issue stated that participants could withdraw some or all of their funds for any reason after age 59 ½. The court explained that the provision, when read in context, notified participants that withdrawals after age 59 ½ would not be subject to the 10% tax for early withdrawals under Internal Code Section 72(t) (26 U.S.C. § 72(t)) (see Practice Note, 401(k) Plans: Overview: Tax on Early Distributions).

The participant also argued that the 10% tax on early distributions prevented him from having a unilateral right to withdraw funds from his accounts. Siding with the government, the Second Circuit concluded that the 10% tax did not prevent the government from garnishing the participant's 401(k) accounts. Because the district court did not address whether the early withdrawal tax limited the participant's, and therefore government's, right to the 401(k) accounts, the Second Circuit remanded the issue to the district court.

Finally, the Second Circuit addressed whether the Consumer Credit Protection Act's (CCPA's) 25% cap on certain garnishments applied so as to limit the government's right to garnish the participant's retirement accounts. Under the CCPA, the portion of an individual's weekly earnings that may be garnished is capped at 25%. Earnings include, among other things, periodic payments from a retirement plan. The participant argued that the CCPA cap applied here because the lump-sum distributions were compensatory in nature, and therefore qualified as earnings. Rejecting this argument, the Second Circuit reasoned that the CCPA's earnings definition included periodic retirement plan payments but was silent on lump-sum distributions. Joining other circuit courts, the Second Circuit held that the CCPA's garnishment cap does not apply to lump-sum distributions from 401(k) plans.