“I DON’T CARE WHAT YOUR DIVORCE DECREE SAYS!”: RECENT SUPREME COURT DECISION SIMPLIFIES PLAN ADMINISTRATORS’ BENEFICIARY DETERMINATIONS

On January 26, 2009, the US Supreme Court unanimously held that a retirement plan administrator could pay death benefits to the participant’s designated beneficiary even though the beneficiary had, when she divorced the participant, waived her interest in the plan.

The Kennedy v. DuPont decision means that plan administrators will not be required to decide whether a divorce decree constitutes a waiver of the beneficiary’s right to receive death benefits if the participant neglected to execute a new beneficiary designation after the divorce. The administrator need only look to the participant’s beneficiary designation to determine who is entitled to the death benefit. There may still be a dispute between the former spouse and other potential heirs, but that dispute will be resolved in a state court action between those parties rather than by the plan administrator.

Kennedy v. DuPont is consistent with Egelhoff v. Egelhoff, the previous Supreme Court case holding that a Washington state statute that voided designation of a spouse as beneficiary effective upon a divorce could not be applied to an ERISA-governed retirement plan. A number of lower courts, however, ruled that, while state law could not control, a federal common law waiver doctrine could be applied. Kennedy v. DuPont overrules these decisions and makes the law consistent throughout the country.

Bottom Line 

If the plan administrator has not received a qualified domestic relations order directing a different result, plan death benefits should be paid to the participant’s beneficiary as determined by the terms of the plan.

Planning Consideration 

Plan sponsors may want to consider addressing divorce explicitly in their plans to help save participants from their own inaction. A plan can provide that any designation of a spouse as beneficiary will, effective upon the participant’s divorce, be applied as if the spouse had predeceased the participant. Such a provision will, in most cases, be consistent with the participant’s wishes and may avoid a court battle between the former spouse and the participant’s heirs. If the participant intends the former spouse to continue as beneficiary, a post-divorce beneficiary designation would be required.

Contact Us

If you would like to discuss the impact of Kennedy v. DuPont on the administration of your plans or have any other employee benefits questions, contact a member of Oppenheimer’s Employee Benefits Group.

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.