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Supreme Court Rules in Divorced Beneficiary Case

In a 9-0 decision, the Supreme Court has ruled that the DuPont Company acted correctly by paying a deceased worker's retirement benefits to his ex-wife, even though she had previously waived her right to the benefits as part of their divorce settlement. (Kennedy v. Plan Administrator for DuPont Savings and Investment Plan No. 07-636, January 26, 2009)

The case illustrates the importance of asking participants to update their beneficiary designation forms following a life changing event. Some administrators suggest asking for a new beneficiary form once every five years.

Ordinarily, in order for a qualified plan to pay out a benefit to a former spouse, a domestic relations order (DRO) must be issued by a court and reviewed by the plan's representative to determine if it is a qualified domestic relations order (QDRO). The question before the Supreme Court in this case was not just whether a former spouse could waive some or all benefits without a QDRO (which the court ruled could be done), but whether a former spouse who is the named beneficiary could use a divorce decree to waive his or her right to benefits under the plan when that process does not conform with the plan's procedures for waiving a beneficiary's benefits. Note that the divorce decree in this case did not name an alternate payee nor did it set up "segregated amounts" that would have to be paid to an alternate payee under a QDRO.

Background.

The participant initially completed a beneficiary form electing his wife as primary beneficiary for his savings and investment plan (SIP) benefits in 1974. They later divorced, but he failed to designate a new beneficiary after the divorce was finalized in 1994. Upon his death in 2001, his daughter requested that DuPont distribute the plan benefits to the estate. However, in accordance with the beneficiary form that was on file, DuPont paid the benefits to his ex-wife. The estate then sued in an attempt to recover the $400,000 that was distributed to the ex-spouse, claiming she had waived her right to the benefits in the divorce.

Justice Souter delivered the Supreme Court's opinion.

He started with the basic Employee Retirement Income Security Act (ERISA) principle that a plan administrator is obligated to manage an ERISA plan "in accordance with the documents and instruments governing" it. "The Estate's claim therefore stands or falls by 'the terms of the plan'... a straightforward rule of hewing to the directives of the plan documents that lets employers 'establish a uniform administrative scheme, [with] a set of standard procedures to guide processing of claims and disbursement of benefits.'" (Egelhoff v. Egelhoff)

By giving plan participants a clear set of instructions that explain what participants must do to make their own instructions clear, "ERISA forecloses any justification for enquiries into nice expressions of intent, in favor of the virtues of adhering to an uncomplicated rule: 'simple administration, avoid[ing] double liability, and ensur[ing] that beneficiaries get what's coming quickly, without the folderol essential under less-certain rules.'" (Fox Valley & Vicinity Const. Workers Pension Fund v. Brown)

Less-certain rules would be costly.

Plan administrators would have to "examine a multitude of external documents that might purport to affect the dispensation of benefits," (Altobelli v. IBM Corp) "and be drawn into litigation like this over the meaning and enforceability of purported waivers. The Estate's suggestion that a plan administrator could resolve these sorts of disputes through interpleader actions merely restates the problem with the Estate's position: it would destroy a plan administrator's ability to look at the plan documents and records conforming to them to get clear distribution instructions, without going into court."

The DuPont plan document clearly states that a participant has the power both to designate any beneficiary or beneficiaries to receive all or part of the funds upon the participant's death, and to replace or revoke such designation. The plan requires all authorizations, designations, and requests concerning the plan to be made by employees in the manner prescribed by the plan administrator. Thus, the Court held that the plan administrator was correct to disregard the waiver in the divorce decree because it was in conflict with the beneficiary designation made by the former husband in accordance with the plan documents.

It should be noted that the decedent did file a new beneficiary designation naming his daughter Kari as the beneficiary under DuPont's separate pension and retirement plan, and it was honored.

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