The 3rd U.S. Circuit Court of Appeals agreed with a district court ruling that plan fiduciaries must abide by a deceased participant’s beneficiary designation form and pay benefits to that beneficiary. That issue was not disputed on appeal.
What was disputed is the district court’s finding that allowing for a state court lawsuit by the estate of the deceased participant to recover benefits paid to his ex-spouse per a common law agreement would go against the Employee Retirement Income Security Act (ERISA). The district court contended that allowing for such a challenge would violate ERISA’s intent to ensure payments to beneficiaries are expedited.
The 3rd Circuit found that if, after distribution, the ex-spouse’s right to the funds is challenged because of her common law waiver, that challenge will be litigated as an ordinary contract dispute. Accordingly, the appellate court ruled that permitting suits against beneficiaries after benefits have been paid does not implicate any concern of expeditious payment or undermine any core objective of ERISA.
The court remanded the case to the district court with instructions to assess the necessity of a further remand to state court to address the merits of any remaining state law issue.
In 2000, William Kensinger Jr. enrolled in a 401(k) plan sponsored by his employer, URL Pharma Inc. He named his wife Adele as beneficiary. However, during divorce proceedings in 2008, the two entered into an agreement in which they agreed to waive, release and relinquish any rights they may have to each other’s individual retirement accounts or other retirement benefits or savings plans.
Nine months following the divorce, William died and a dispute arose regarding distribution of his plan assets.
The 3rd Circuit said the leading case for the situation is Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, in which the facts are virtually identical. In that case a district court granted summary judgment to the estate, but the 5th U.S. Circuit Court of Appeals reversed, finding that paying the estate would violate ERISA’s anti-alienation provision.
The U.S. Supreme Court affirmed the 5th Circuit’s decision, although on different grounds, but made clear that its holding did not address the question of whether the estate could have sued the ex-wife to recover the benefits after she received them from the plan administrator.
The 3rd Circuit’s decision is available at http://www.ca3.uscourts.gov/opinarch/104525p.pdf.