Legal Advocacy
AARP Urges Supreme Court to Require Participants to Follow the Plan Terms in Order to Change Beneficiary Designations
AARP has filed a “friend of the court” brief in support of neither party in the Supreme Court case of Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan. AARP argues that employee benefit plan documents establish who may be a beneficiary and, here, the executrix of the estate did not meet any of the plan criteria.
William and Liv Kennedy were married at the time William participated in the Dupont’s Savings and Incentive Plan (SIP). William named Liv as his sole beneficiary in the SIP. When the Kennedys divorced in 1994, Liv agreed to waive her rights to William’s SIP and other retirement benefits. Both were represented by counsel. A qualified domestic relations order (QDRO) was executed which covered some of William’s benefits but not the SIP benefits. William retired in 1998 and died in 2001. He never changed his SIP beneficiary designation.
Upon his death, his estate (represented by his daughter) demanded Liv give up her rights to the SIP money (which was over $400,000). Subsequently, his estate demanded that DuPont pay the SIP money to the estate, arguing that Liv had waived her right to the money. DuPont refused because the beneficiary designation still listed Liv as the sole beneficiary of the SIP benefits; the Plan paid Liv the benefits. The estate filed a claim for benefits, claiming that the divorce decree invalidated the beneficiary designation.
The U.S. District Court for the Eastern District of Texas agreed that under federal common law Liv had waived her right to the SIP benefits by executing a divorce decree. But the U.S. Court of Appeals for the Fifth Circuit reversed. The Fifth Circuit began its analysis with the federal law which provides that pension plan benefits may not be assigned or alienated unless a qualified domestic relations order is used. Any other type of waiver is invalid. Thus, DuPont could not be compelled to recognize the waiver because it would conflict with federal law. Under this reading, DuPont properly followed the beneficiary designation.
The Supreme Court granted certiorari on the issue of whether the federal Employee Retirement Income Security Act (ERISA) requires a qualified domestic relations order in order for a divorcing spouse to waive his or her rights to the other spouse’s pension benefits.
AARP’s brief, filed by attorneys with AARP Foundation Litigation, argues that ensuring that plans and participants know what the rules are and that the rules are followed actually protects participants and their beneficiaries. In this case, the brief argues, the correct result under ERISA is that the plan pay the money to the ex-wife as designated by the plan documents. The executrix of the estate can sue in state court under the divorce decree to recover the money. However, the brief notes, regardless of how this specific dispute is resolved, it is important for everyone to understand the rules and to understand the importance of updating beneficiary designations, particularly when an important life change (birth, death, divorce, etc.) occurs.
Employee benefits are one of the two largest assets in most marriages. It is important that participants, beneficiaries, and their counsel know of the plan’s procedures and requirements so that they know what actions they must take, when dividing marital assets, to ensure that their intentions with respect to plan benefits will be followed.
Contact person:
Mary Ellen Signorille
msignorille@aarp.org
(202) 434-2060