[author, Donna Edwards, Atlanta, +1 212 572 2701, firstname.lastname@example.org.]
In 2009, the US Supreme Court provided a roadmap for plan administrators to follow when determining the proper beneficiary under an ERISA-covered employee benefit plan. The Court, in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, et al , held that the administrator of an ERISA-covered employee benefit plan need only look to the governing plan documents to determine the proper plan beneficiary (the “plan documents rule”).
The Kennedy Case
In the Kennedy case, William Kennedy, a participant in DuPont’s tax-qualified retirement plan, designated his wife, Liv, as his primary beneficiary on the plan’s prescribed beneficiary designation form. The couple later divorced, and Liv gave up under the divorce decree (which did not qualify as a “qualified domestic relations order” (“QDRO”)) any right related to William’s plan benefits. However, although the plan permitted a beneficiary to submit a “qualified disclaimer” (as described under Internal Revenue Code Section 2518) of plan benefits, Liv did not submit such a disclaimer waiving her plan benefits, and William did not change his beneficiary designation under the plan. When William died in 2001, both Liv’s and William’s estate claimed his plan benefit. The plan administrator decided that Liv was the proper beneficiary and paid William’s plan benefit to her. The estate sued the plan administrator and DuPont.
The Supreme Court found in favor of Liv, holding that the plan administrator and DuPont were correct in looking only to the governing plan documents, and not the divorce decree, to determine the proper plan beneficiary. The Court explained that requiring the plan administrator to look only to the plan documents would provide the greatest degree of certainty for both plan administrators and participants and would prevent plan administrators from having to evaluate waivers and other extrinsic evidence to determine the proper beneficiary.
An issue left open by the Supreme Court in the Kennedy case was the effect of a beneficiary’s waiver of plan benefits made in a manner consistent with plan documents. We suspect such a waiver, if permitted by and made in accordance with plan documents, should be treated as part of the plan documents and thus given effect.
In addition, the Court in the Kennedy case stated that its holding did not address a situation in which the plan does not provide an opportunity for a beneficiary to disclaim his or her plan benefit.
However, the recent case of Boyd v. Metropolitan Life Insurance Co. presented the 4th Circuit Court of Appeals with the opportunity to consider just such a case. In the Boyd case, a participant in an ERISA-covered life insurance plan, Emma, designated her husband, Robert, as her plan beneficiary in accordance with the plan’s terms. In the event a participant failed to designate a beneficiary, the plan provided that benfits would be distributed to the participant’s estate. The plan did not specify any procedure for beneficiaries to follow to waive their benefits.
Emma and Robert later separated and entered into a separation agreement in which Robert waived any claim to Emma’s life insurance benefits. Although the plan allowed participants to change their beneficiary at any time by sending a written request to the plan administrator, Emma failed to take this step. Upon Emma’s death, the plan administrator distributed the life insurance benefits to Robert. Emma’s estate sued, claiming eligibility to the benefits on the theory that Robert relinquished his rights to the benefits.
The 4th Circuit held in the Boyd case that the plan documents rule does not hinge on whether a plan provides for a formal waiver procedure, and that the plan administrator properly paid the plan benefits to Robert in accordance with Emma’s beneficiary designation on file with the plan. The Court noted that Robert did not wish, in fact, to refuse his benefits.
The Court also explained that an ERISA plan beneficiary always has the option to refuse benefits at the moment of distribution. Thus, the only way a plan really could provide no means for a beneficiary to renounce an interest in benefits would be if the plan somehow prevented the beneficiary from refusing to take the benefit.
Finally, the Supreme Court in the Kennedy case noted that the estate contended that requiring a plan administrator to distribute benefits in conformity with plan documents will allow a beneficiary who murders a participant to obtain benefits under the terms of the plan. However, the Court stated that the “slayer” case was not before it, and thus the Court did not address it.
We see a couple of insights for plan administrators from the Kennedy and Boyd cases. First, plan administrators should look only to plan documents, including any QDROs, waivers or disclaimers permitted by and made in accordance with the plan documents, in determining the beneficiary of a participant’s plan benefit. Although a third party may have an appealing argument that he or she, as opposed to the participant’s properly designated beneficiary or alternate payee, should receive the plan benefit, the plan administrator’s fiduciary obligation is to follow the plan documents, and the Kennedy case shows that the plan administrator should not consider evidence extrinsic to those plan documents.
In addition, plan administrators should establish clear plan provisions and procedures for beneficiary designations and effectively communicate those provisions and procedures to plan participants, including the effect (if any) of a divorce on beneficiary designations. Plan administrators should also encourage participants to carefully consider beneficiary designations and to revise them as needed.
King & Spalding would be happy to assist you with any questions you have about properly determining beneficiaries under your ERISA plans.
636 F.3d 138 (4th Cir. 2011).
(See also Matschiner v. Hartford Life & Accident Insurance Co., 622 F.3d 885 (8th Cir. 2010), reaching same result)