U.S. Supreme Court Weighs in on Beneficiary Issues in Savings and Investment Plans
What happens when an individual never removed his divorced spouse as a beneficiary of his employer’s Savings and Investment Plan (SIP) and then dies? The recent U. S. Supreme Court case of Kennedy v. DuPont, 129 S.Ct. 865, 172 L.Ed.2d 662 (1/26/2009) answered this question in a unanimous decision authored by Justice Souter. The Court determined the plan document controlled what happened to the benefits. If the plan document stipulated release of the money to the divorced spouse, regardless of a non-QDRO divorce decree directing otherwise, because the decedent neglected to change the designated beneficiary from the now divorced spouse to another individual, then the plan administrators acted correctly when they released the money to the divorced spouse and not to the estate.
The decedent, William, worked for DuPont and participated in a SIP. Under the SIP, William retained the power to designate any beneficiary or beneficiaries to receive all or part of the funds upon his death, and to replace or revoke such designation. Importantly, under the SIP when William died, if he did not have a surviving spouse and a beneficiary designation was not in effect, distribution would be made to the executor or administrator of his estate. Implicit in the foregoing, of course, is that if William never amended his beneficiary designation to remove his now divorced spouse, it would remain in effect.
In 1971, William married Liv, and, in 1974, he signed a form designating her to take benefits under the SIP. William did not name a contingent beneficiary to take if she disclaimed her interest. William and Liv divorced in 1994. The divorce decree (apparently non-QDRO) provided for divorce of the parties, and specifically divested Liv of her rights in any of William’s retirement plans. However, William did not execute any documents removing Liv as the beneficiary of the SIP, although he did execute a new beneficiary-designation form naming his daughter, Kari, as the beneficiary under DuPont’s Pension and Retirement Plan. On William’s death in 2001, petitioner Kari was named executrix and she asked DuPont to distribute the SIP funds to William’s Estate. DuPont relied on William’s designation form and paid the balance of some $400,000 to Liv.
Litigation occurred and the matter eventually made its way to the U.S. Supreme Court. The Court granted certiorari to resolve a split among the appellate courts and state supreme courts with regards to a divorced spouse’s ability to waive pension plan benefits through a divorce decree not amounting to a QDRO and whether a beneficiary’s federal common law “waiver” of plan benefits would be effective where the waiver was inconsistent with plan documents.
The Court held that regardless of any waiver under federal common law, the plan administrator was correct in not granting Liv’s “waiver”. Instead the Court held that the plan administrator “did its statutory ERISA duty” by paying the benefits to Liv in conformity with the plan documents. The Court reasoned that ERISA compliance is governed by the plain language of the written documents, and that plan administrators should not have to review a multiple amount of documents prior to release of the benefits.
Family law attorneys need to make sure that if there is no QDRO they take action to make their clients aware if the consequences of not changing the beneficiary designation. If there is a QDRO, the plan administrators must be made aware of the QDRO promptly so that the plan records/beneficiary designation is modified to reflect the terms of the QDRO. Estate planning attorneys need to review their clients’ beneficiary designations to make sure that they still comply with their estate plan goals.
By Adam S. Bernick, Esquire, Law Office of Adam S. Bernick and of counsel to the Law Office of Faye Riva Cohen, P.C. and published in Upon Further Review on November 10, 2009.