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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
- therwise 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
- rder 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 February 2009
Practice Group(s): Employee Benefits Employee Stock Ownership Plans Executive Compensation Private Clients, Trusts & Estates