February 2009
Practice Group(s):
Employee Benefits
Employee Stock
Ownership Plans
Executive
Compensation
Private Clients,
Trusts & Estates
Supreme Court Provides Clarity for Plan
Administrators Paying ERISA Benefits in
Divorce
The Supreme Court has recently provided some much needed clarity for retirement plan
administrators regarding paying ERISA plan benefits in certain cases of divorce.
In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, the Court ruled that the
plan administrator properly relied on the participant’s beneficiary designation form on file in paying
benefits, even though the participant’s divorce decree purportedly waived the beneficiary’s rights to
the plan benefits. In the Kennedy case, the executrix of the estate of a deceased participant (Mr.
Kennedy) in the DuPont Savings and Investment Plan (the SIP) sued the plan administrator, claiming
that the plan administrator improperly paid benefits to Mr. Kennedy’s ex-wife upon Mr. Kennedy’s
death. The SIP is a retirement plan subject to the Employee Retirement Income Security Act of 1974
(ERISA). During their marriage, Mr. Kennedy executed a beneficiary designation naming Mrs.
Kennedy as the sole beneficiary of his SIP benefits in the event of his death. The Kennedys’ divorce
decree included a waiver by Mrs. Kennedy of all rights to any retirement benefits relating to Mr.
Kennedy’s past, present or future employment. However, Mr. Kennedy never changed his beneficiary
designation under the SIP to remove Mrs. Kennedy and designate another beneficiary. Furthermore,
Mrs. Kennedy did not complete a waiver of her benefit in the form and manner provided by the SIP.
The Court ruled that the beneficiary designation, as a document governing the plan, controlled and
that the plan administrator did not need to take into account Mrs. Kennedy’s waiver in the divorce
decree.
The Court’s reasoning is rooted in the fundamentals of ERISA. ERISA provides that a plan must be
established and maintained pursuant to a written document that specifies the basis on which payments
are made to and from the plan. Furthermore, the plan administrator has a fiduciary duty to administer
the plan in accordance with the documents and instruments governing the plan. The Court cited this
“plan document rule” as straightforward and uncomplicated, and noted that ERISA encourages clear
procedures by which participants may make their intentions known.
Requiring a plan administrator to look to external evidence such as a divorce decree when there are
otherwise clear instructions would, in the words of the Court, “destroy a plan administrator’s ability to
look at the plan documents and records conforming to them to get clear distribution instructions,
without going into court.”
This case also emphasized an important, yet often overlooked, limitation of qualified domestic
relations orders (QDROs). While it appears that the parties in this case prepared a domestic relations
order that may have been intended to be a QDRO, it was never filed with the plan and ultimately had
no bearing on the outcome of the case. However, the Court made it clear that a QDRO is not an
appropriate vehicle for a waiver of benefits by a participant’s exspouse.
A QDRO creates or recognizes an alternate payee’s right to all or a portion of a participant’s plan
benefit, or assigns such a right to an alternate payee. It is not a mechanism by which someone who
Supreme Court Provides Clarity for Plan Administrators
Paying ERISA Benefits in Divorce
otherwise may have become an alternate payee may waive his or her rights as an alternate payee. It
would be permissible for a plan sponsor to provide a separate method for such a waiver of benefits.
The Kennedy case confirms that plan administrators must rely on the documents and instruments
governing the plan in making benefit determinations. This means that a plan administrator may rely on
beneficiary designations and properly filed QDROs in determining the proper payee of benefits,
particularly in the case of divorce. Extraneous documents such as a divorce decree should, in most
cases, not affect the plan administrator’s actions.
Plan sponsors may wish to consider amending their plans to provide that, in the event of a divorce,
any beneficiary designations the participant previously executed in favor of the then-ex-spouse are
automatically revoked. In most cases, this would likely achieve the participant’s desired result, and in
cases where the participant still wishes the ex-spouse to be the beneficiary a new beneficiary
designation could be completed after the divorce.
Individuals should remember to update all of their beneficiary designations for retirement benefits in
the event of divorce, even if the divorce decree (or state law, which is generally preempted by ERISA)
appears to address the treatment of the parties’ retirement benefits. Failure to update beneficiary
designations can result in an exspouse receiving a benefit that neither party intended the ex-spouse to
receive.
Finally, it is not clear how this ruling may apply to death benefits under welfare plans subject to
ERISA, as there was no welfare plan benefit at issue here. However, given that the plan document rule
relied on by the Court applies equally to welfare plans subject to ERISA, it would be reasonable to
conclude that a similar result would be reached in the case of welfare plan death benefits. Note that
insured welfare benefits are subject to state laws regulating insurance even if the benefits are covered
by ERISA. Such laws may impact who is considered the beneficiary of life or accidental death
insurance subsequent to a divorce.
Authors:
Douglas M. Love
Doug.love@klgates.com
+1.206.370.7592
Deirdre C. Thomas
Deirdre.thomas@klgates.com
+1.206.370.5894
2
Supreme Court Provides Clarity for Plan Administrators
Paying ERISA Benefits in Divorce
3