Supreme Court to Divorced Participants – Check Beneficiary Designations if No Valid QDRO

“ERISA provides no exception to the plan administrator’s duty to act in accordance with plan documents.”

- Headnote 2, Kennedy v. Plan Administrators for Dupont Savings.

In the game of QDRO beneficiary tug-of-war between an ex-wife and daughter over a deceased participant’s account balance, the U.S. Supreme Court today found in favor of the ex-wife in Kennedy v. Plan Administrators for Dupont Savings, No. 07-636, (Jan. 26, 2009).

In an opinion that will have divorce attorneys and anyone with an ex-spouse double checking their beneficiary forms tomorrow, the Court decided that Mrs. Kennedy was entitled to Mr. Kennedy’s pension because Mr. Kennedy did not change his beneficiary form even though the ex-Mrs. Kennedy had waived her rights to Mr. Kennedy’s pension when they divorced. As summarized by Justice Souter, who authored the Court’s opinion:

“The question here is whether the terms of the limitation on assignment or alienation invalidated the act of a divorced spouse, the designated beneficiary under her ex-husband’s ERISA pension plan, who purported to waive her entitlement by a federal common law waiver embodied in a divorce decree that was not a QDRO. We hold that such a waiver is not rendered invalid by the text of the antialienation provision, but that 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 assignment or alienation provision the Court refers to is contained in 29 U.S.C. 1056(d)(1) and Code section 401(a)(13)(A), which provides that benefits under a plan may not be assigned or alienated. 29 U.S.C. 1056(d)(3) and Code section 401(a)(13)(B) permits an exception to this rule for Qualified Domestic Relations Orders (QDRO). Code section 414(p) defines what a QDRO is.

What brought this case to the Court was the combination of love, divorce, lack of a QDRO and and old beneficiary designation form. In 1971, Mr. Kennedy marrried Mrs. Kennedy. Approximately 3 years later, in 1974, he signed a form designating Mrs. Kennedy as his beneficiary for the purposes of his employer’s plan – the DuPont Savings and Investment Plan. 20 years later, they divorced, and the divorce decree divested Mrs. Kennedy of all claims to any of Mr. Kennedy’s benefits under his employer’s retirement or pension plans. Mr. Kennedy then signed a new beneficiary designation form for DuPont’s other retirement plan – the DuPont Pension and Retirement Plan – designating his daughter as his beneficiary but did not sign a new beneficiary designation form for the DuPont Savings and Investment Plan. When Mr. Kennedy died in 2001, the only beneficiary designation for the DuPont Savings and Investment Plan was the beneficiary designation form signed in 1974 naming the now-former Mrs. Kennedy as his beneficiary.

The plan document provided that, “if at the time the participant dies, no surviving spouse exists and no beneficiary designation is in effect, distribution shall be made to, or in accordance with the directions of, the executor or administrator of the decedent’s estate.” When Mr. Kennedy died, his daughter became the executor of his estate, and made a claim for his account balance in the DuPont Savings and Investment Plan. The former Mrs. Kennedy also made a claim for his account balance in the DuPont Savings and Investment Plan pursuant to the 1974 beneficiary designation form. DuPont paid the account balance to the former Mrs. Kennedy pursuant to the beneficiary designation form, and the daughter sued DuPont and the plan’s administrator. The district court granted summary judgment to the daughter on behalf of the estate, and ordered DuPont and the plan’s administrator to pay Mr. Kennedy’s benefits under the plan to the estate. The 5th Circuit Court of Appeals reversed, and found that the account balance should go to the former Mrs. Kennedy as the divorce decree did not rise to the level of a QDRO.

The Supreme Court affirmed the 5th Circuit but states that the opinion’s rationale is different than the 5th Circuit’s reasoning. The Court states that under the terms of DuPont’s Savings and Investment Plan, the former Mrs. Kennedy was Mr. Kennedy’s designated beneficiary. The plan provided an easy way for Mr. Kennedy to change the designation but he did not. The plan provided a way for the former Mrs. Kennedy to disclaim her interest in Mr. Kennedy’s benefits via a valid QDRO, but she did not. The plan administrator therefore did what 29 U.S.C. 1104(a)(1)(D) required and paid Mr. Kennedy’s benefits under the plan to the former Mrs. Kennedy.

[tag]pension protection act, ppa, Supreme Court, Kennedy, 1104(a), 1056(d), 414(p), 401(a)(13), DuPont, QDRO, beneficiary, ERISA[/tag]