Plan administrators may wish to (1) review their summary plan descriptions and other communications to be certain that the plan’s communications advise divorced participants of the need to revise their beneficiary designations if they wish to remove their former spouse as a beneficiary of the plan benefits, (2) consider adding a provision to their plans whereby a designation of a participant’s spouse as the participant’s beneficiary is automatically revoked if the participant and spouse become divorced; and/or (3) consider adopting a formal waiver procedure as part of their plan due to a U. S. Supreme Court decision issued last week.
In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. ___ (2009), a plan participant and his wife divorced, and in their property settlement, the participant’s wife relinquished her rights to the participant’s pension benefits. However, the participant failed to execute a document to change his beneficiary designation, so his plan documentation continued to list his former wife as his sole beneficiary. When the participant died, his estate asked for the pension funds to be distributed to the estate, but the plan administrator, relying on the participant’s designation form, paid the entire account to the participant’s former wife. The estate filed suit, alleging that the former wife had waived her right to the pension benefits in the divorce and thus the employer and the plan administrator had violated ERISA by paying the benefit to her.
In a unanimous decision, the Supreme Court held first, that the former wife’s waiver did not constitute an assignment or alienation rendered void under ERISA’s anti-alienation provisions, stating that the former wife’s waiver did not violate such provisions because the waiver did not attempt to direct her interest in the benefits to the estate or any other potential beneficiary.
Second, the Court held that the plan administrator did its ERISA duty by paying the benefits to the former wife in conformity with the plan documents, despite knowledge of the existence of the divorce decree, as ERISA provides no exception to the plan administrator’s duty to act in accordance with plan documents for such a situation. However, the Court did note that (unlike most plans) the plan in question did provide a means by which a beneficiary could waive their interest, and the former wife had not done so. Because the participant failed to change or remove his former wife as his beneficiary (even though the plan documents allowed him to do so) and the former wife failed to waive her interest pursuant to the terms of the plan, the plan administrator did exactly what was required for it when it paid the former wife the benefits owed under the plan.
Unfortunately, the Court’s opinion left open several issues. For example, the Court refused to comment on whether the estate could have brought an action in state or federal court to recover the benefits from the former wife after she received them. Additionally, the Court left open the issue as to whether a designated beneficiary should be paid if the participant is murdered by such beneficiary. More importantly, the Court also left open questions about a waiver’s effect in a situation where plan documents provide no means for a beneficiary to waive an interest in benefits, and, unfortunately, the vast majority of plan documents do exactly that.
If you would like to discuss how this new ruling may affect your business, please contact one of our lawyers.
