Term: 2003
Docket: 02-458
Raymond B. Yates, M.d., P.c. Profit Sharing Plan, And Raymond B. Yates, Trustee v. William T. Hendon, Trustee
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02-458 YATES v. HENDON Ruling below: CA 6, 287 F.3d 521. QUESTION PRESENTED The Employee Retirement Income Security Act ("ERISA") expressly grants sole shareholder corporations, partners and sole proprietors the right to be "participants" in an "employee benefit plan", as those terms are defined in ERISA, if other non-spouse employees participate in the employee benefit plan. Nine circuit courts of appeals and the Department of Labor ("DOL") have reviewed ERISA, and its regulations, and reached the same conclusion. This Court's holding in Nationwide Mutual Ins. Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992), provides that the common-law definition of employee should be used to determine who may be a "participant" in an employee benefit plan. Nonetheless, the Sixth Circuit held in Hendon v. Yates (In re Yates), 287 F.3d 521 (6th Cir. 2002), reh'g denied, 2002 U.S. App. LEXIS 12550 (6th Cir. June 20, 2002) (Appendix, pp. 1a- 8a, 51a-52a), that a different definition of "employee" should be used to determine whether such persons can participate in an employee benefit plan. The question presented is whether a one hundred percent (100%) shareholder of a corporate employer, partner or a sole proprietor can qualify as a participant in an employee benefit plan sponsored by the employer in which other non-spouse employees, as defined in 29 C.F.R. § 2510.3-3(c), participate, and thus, be entitled to enforce the restrictions against alienation contained in § 206(d) of ERISA and §401(a)(13) of the Internal Revenue Code ("Code"). CERT. GRANTED: 6/27/03
In the 2003 case of Raymond B. Yates, M.D., P.C. Profit Sharing Plan and Raymond B. Yates, Trustee v. William T. Hendon, Trustee, the U.S Supreme Court ruled that funds from a profit-sharing plan for a sole practitioner are exempt from bankruptcy proceedings under federal law if they qualify as "ERISA-qualified" retirement plans (Employee Retirement Income Security Act). The court held that ERISA's pension plan provisions extend to cover plans benefiting only an owner and his or her spouse employed by the business because such individuals can be considered employees even though they are also owners of their businesses.
In the dissenting opinion for Raymond B. Yates, M.D., P.C. Profit Sharing Plan and Raymond B. Yates, Trustee v. William T. Hendon, Trustee (2003), Justice Thomas argued that the majority's interpretation of ERISA was overly broad and inconsistent with Congress' intent when it enacted the law in 1974 to protect employee benefits plans from abuse by employers or plan administrators who might be tempted to misuse funds intended for employees' retirement savings or health care costs. He contended that a solo practitioner's profit-sharing plan should not qualify as an "employee benefit plan" under ERISA because such a definition would include virtually any arrangement where an employer sets aside money for future payment to its workers - even if there is only one worker involved who also happens to own the business itself. Justice Thomas believed this expansive reading of ERISA could lead to absurd results where small business owners are able to shield their personal assets from creditors simply by contributing them into their own individual retirement accounts or other similar arrangements which they control both as employer and employee simultaneously – thereby undermining bankruptcy laws designed specifically prevent debtors from hiding assets in order avoid paying off debts owed others legitimately entitled receive those funds instead.
