## Facts

- Joseph B. Shumate, Jr. participated in his employer’s ERISA-qualified pension plan.
- The plan contained an anti-alienation provision barring assignment or alienation of benefits, as required by ERISA and related tax law.
- After Shumate filed for bankruptcy, the bankruptcy trustee, John R. Patterson, sought to include Shumate’s pension plan interest in the bankruptcy estate.
- Shumate argued his interest was excluded from the estate by 11 U.S.C. § 541(c)(2), which excludes a debtor’s beneficial interest in a trust subject to an enforceable transfer restriction under “applicable nonbankruptcy law.”
- The district court held that “applicable nonbankruptcy law” referred only to state law, concluded the plan was not a protected spendthrift trust under state law, and ordered the plan interest paid to the trustee.
- The Fourth Circuit reversed, holding the pension interest was excluded under § 541(c)(2).

## Issues

1. Whether “applicable nonbankruptcy law” in 11 U.S.C. § 541(c)(2) includes federal law such as ERISA.
2. Whether an ERISA-qualified plan’s anti-alienation provision is a “restriction on the transfer” of a debtor’s beneficial interest that is “enforceable” for purposes of § 541(c)(2).
3. Whether § 541(c)(2) is limited to state spendthrift trust restrictions.

## Decision

- The Supreme Court affirmed the Fourth Circuit.
- The Court held that § 541(c)(2), by its plain text, includes any relevant nonbankruptcy law, including federal law such as ERISA.
- The Court held that ERISA’s required anti-alienation provision constitutes a restriction on transfer within the meaning of § 541(c)(2).
- The Court found the restriction “enforceable” because ERISA provides participants a civil action to enjoin violations of ERISA or plan terms.
- Shumate’s interest in the ERISA-qualified pension plan was excluded from the bankruptcy estate.

## Legal Principles

- “Applicable nonbankruptcy law” in 11 U.S.C. § 541(c)(2) is not limited to state law and may include federal law.
- A transfer restriction required by ERISA and incorporated into an ERISA-qualified pension plan is a “restriction on the transfer of a beneficial interest” for purposes of § 541(c)(2).
- A restriction satisfies § 541(c)(2)’s enforceability requirement when nonbankruptcy law provides a mechanism to enforce the restriction (including participant suits under ERISA).
- Courts should not read an unexpressed state-law spendthrift-trust limitation into § 541(c)(2) when the statutory text is clear.

## Conclusion

The Court held that ERISA’s mandatory anti-alienation protection is enforceable nonbankruptcy law under § 541(c)(2), so a debtor’s interest in an ERISA-qualified pension plan with such a clause is excluded from the bankruptcy estate.


Patterson v. Shumate, 504 U.S. 753 (1992)