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    The Lawletter Blog

    PENSIONS: ERISA—Effect of Designated Beneficiary's Waiver of Benefits

    Posted by Gale Burns on Wed, Feb 29, 2012 @ 17:02 PM

    The Lawletter Vol 36 No 8

    Jim Witt, Senior Attorney, National Legal Research Group

    After the enactment of the Employee Retirement Income Security Act of 1974 ("ERISA"), a conflict developed among the U.S. Circuit Courts of Appeal as to whether the antialienation provision, 29 U.S.C. § 1056(d)(1) (benefits under an ERISA plan may not be assigned or alienated), applied to void an ex-spouse's waiver of ERISA plan benefits under a divorce decree.  The theory was that the waiver would result in a prohibited alienation of the benefits to the decedent's estate.  The Fourth Circuit Court of Appeals in Altobelli v. IBM Corp., 77 F.3d 78 (4th Cir. 1996), found no conflict between common-law waiver and the antialienation rule.  The Third Circuit Court of Appeals in McGowan v. NJR Serv. Corp., 423 F.3d 241 (3d Cir. 2005), held that common-law waiver in a divorce decree was barred by the antialienation rule.

    In Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001), the U.S. Supreme Court, although not dealing with a spousal waiver of ERISA benefits or the antialienation rule, set the stage for the resolution of the conflict as to common-law waiver.  In reversing the Supreme Court of Washington, the U.S. Supreme Court ruled that ERISA preempted a Washington statute, Wash. Rev. Code § 11.07.010(2)(a), providing for automatic revocation upon divorce of any designation of a spouse as the beneficiary of a nonprobate asset.  The decedent, David A. Egelhoff, while married to the petitioner, had designated her as the beneficiary of a life insurance policy and pension plan, with both plans subject to ERISA.  The petitioner and Egelhoff divorced, and Egelhoff died intestate without having removed the petitioner as the beneficiary of the insurance policy and pension plan.  The respondents, Egelhoff's children by a previous marriage, claimed the proceeds of both the insurance policy and pension plan as Egelhoff's heirs at law.  In holding that the Washington statute was preempted by ERISA, the Court ruled that the statute ran counter to ERISA's command that a plan fiduciary shall administer the plan "in accordance with the documents and instruments governing the plan."  29 U.S.C. § 1104(a)(1)(D).  The Supreme Court stated:

    One of the principal goals of ERISA is to enable employers "to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursement of benefits."  Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9, 107 S.Ct. 2211, 96 L.Ed.2d 1 (1987).  Uniformity is impossible, however, if plans are subject to different legal obligations in different States.

    The Washington statute at issue here poses precisely that threat.  Plan administrators cannot make payments simply by identifying the beneficiary specified by the plan documents.  Instead they must familiarize themselves with state statutes so that they can determine whether the named beneficiary's status has been "revoked" by operation of law.  And in this context the burden is exacerbated by the choice‑of‑law problems that may confront an administrator when the employer is located in one State, the plan participant lives in another, and the participant's former spouse lives in a third. In such a situation, administrators might find that plan payments are subject to conflicting legal obligations.

    532 U.S. at 148-49 (footnote omitted).

    In a 2009 case, citing Egelhoff and applying the above-quoted principles calling for adherence to the designation of beneficiaries as per the ERISA plan documents, the U.S. Supreme Court resolved the conflict as to an ex-spouse's purported waiver of benefits.  Kennedy v. Plan Adm'r for DuPont Sav. & Inv. Plan, 555 U.S. 285 (2009).  The plan participant in Kennedy had designated his then spouse as the death beneficiary of his ERISA-covered savings and investment plan.  Under the couple's divorce decree—which was not a qualified domestic relations order that would except the decree from the application of ERISA's antialienation rule—the participant's spouse was divested of any interest in a retirement plan or benefit program existing by reason of the participant's employment.  The Court held that although the spouse's waiver did not violate ERISA's antialienation rule, the plan administrator had been correct in honoring the ex-spouse's designation as beneficiary on the plan documents.

    While it would seem that the Kennedy case should have marked the end to any question concerning a conflict between an ex-spouses's waiver of benefits in the participant spouse's ERISA-covered plan and the designation of the beneficiary on the plan documents, the recent Georgia case, Alcorn v. Appleton, 708 S.E.2d 390 (Ga. Ct. App. 2011), shows that additional issues are possible.  There, in a settlement agreement, the spouses had waived their rights in each other's retirement pay or benefits.  The waivers were not ERISA-compliant.  The administrator of two ERISA-covered plans in which the deceased husband had participated paid the benefits to the surviving wife in accordance with the terms of the plans, as required by Kennedy.  The executrix of the husband's estate brought suit based on the wife's alleged breach of her waiver under the settlement agreement.

    The Alcorn court ruled that the Kennedy rule of adherence to the plan terms did not preclude a suit against the surviving spouse once the ERISA plan benefits had been distributed.  In Kennedy, the suit had been against the plan administrator, and the court had noted that it was not expressing any view as to the viability of a suit to recover benefits from a spouse who had already received them.  The Alcorn court ruled that because the distribution of the benefits had been completed, ERISA rules no longer applied and the participant's estate had a valid cause of action against the spouse for breach of contract, based on her failure to honor her waiver.  The U.S. Supreme Court may well be looking at this issue at some point.

    Topics: legal research, ERISA, The Lawletter Vol 36 No 8, pensions, antialienation provision, 29 U.S.C. § 1056, waiver of benefits under divorce decree, is named beneficiary's status revoked by waive, conflict with state laws, Jim Witt

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