It is not often that the U.S. Supreme Court becomes involved in an Employee Retirement Income Security Act of 1974 (ERISA) matter.  On January 26, 2009, in the matter of Kennedy v. Plan Adm'r for DuPont Sav. and Inv. Plan, 129 S. Ct. 865 (2009), the court addressed application of §1104 of Section 29 U. S. C. with regard to the obligations of the administrator of an ERISA plan "in accordance with the documents and instruments governing" them. 

 

Under the facts of Kennedy v. Plan Adm'r for DuPont Sav. and Inv. Plan, the decedent, William Kennedy, was an employee of E. I. Du-Pont de Nemours & Company and a participant in its savings and investment plan (SIP).  In 1971, William married his spouse, Liv Kennedy.  In 1974, William designated Liv as the beneficiary of his SIP and named no other contingent beneficiary to take if she disclaimed her interest.  

 

William and Liv subsequently divorced in 1994.  Under the terms of the divorce decree, Liv divested all of her right, title, interest, and claim in and to "[a]ny and all sums . . . the proceeds [from], and any other rights related to any . . . retirement plan, pension plan, or like benefit program existing by reason of [William's] past or present or future employment." However, William never executed a new document removing Liv as the SIP beneficiary.

 

On William's death, Kari Kennedy, William's daughter and the executrix of his Estate, requested the SIP funds be distributed to his Estate.  In reliance on William's designation form, the SIP plan administrator distributed the funds to Liv. The Estate commenced a lawsuit and alleged that (i) Liv had waived her SIP benefits in the divorce; and (ii) the SIP plan administrator violated ERISA by paying the funds to her.  

 

The District Court agreed with the Estate and held "that a beneficiary can waive his rights to the proceeds of an ERISA plan ... provided that the waiver is explicit, voluntary, and made in good faith," and entered summary judgment in favor of the Estate and ordered the SIP funds be distributed to the Estate. On appeal, the Fifth Circuit reversed and ordered the funds to be distributed to Liv.

 

In a unanimous opinion, the U.S. Supreme Court held that the Employee Retirement Income Security Act of 1974(ERISA) obligates administrators to manage ERISA plans "in accordance with the documents and instruments governing" them. At a more specific level, ERISA requires covered pension benefit plans to "provide that benefits . . . under the plan may not be assigned or alienated,"  and the plan administrator properly disregarded the waiver owing to its conflict with the designation made by the former husband in accordance with plan documents.  The court reasoned that an alternative decision would force plan administrators to be forced "to examine a multitude of external documents that might purport to affect the dispensation of benefits," and be drawn into litigation over the meaning and enforceability of purported waivers.

 

Once a client has suffered through a divorce or major life changing event it is important for them to immediately change the beneficiary of his or her retirement account(s) and life insurance policies.  Even if the interim beneficiary is his or her estate, the end result will be better than if it was an ex-spouse or former life companion.

 

This article is shared courtesy of Marc J. Soss, Esquire. 

 

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Jack Benke, CEA®

Certified Estate Advisor®

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