Supreme Court weighs in on ERISA

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It is rare when matrimonial attorneys are able to cite a U.S. Supreme Court case.
As the Supreme Court itself has held, issues involving marriage commonly fall within the province of state law.
The court recently issued a ruling on a case involving the effect of a divorce agreement on property distribution, however. The reason the federal courts ventured into the matrimonial territory is that the property to be distributed was an employee’s savings and investment plan, or SIP.
SIP accounts, along with 401k accounts and pensions, are regulated under the Employee Retirement Income Security Act of 1974. In Kennedy v. Plan Administrator for DuPont Sav. & Inv. Plan, the Supreme Court held that a spouse’s waiver of SIP benefits in a divorce decree did not divest her of her status as the beneficiary of her former husband’s SIP benefits. 129 S. Ct. 865 (2009).
Facts
After the marriage of Liv and William Kennedy, William named Liv as the beneficiary under his SIP account through his employer, DuPont. William did not name any contingent beneficiary. When Liv and William divorced, Liv waived her interest in her husband’s SIP, but William did not revoke his designation of Liv as his beneficiary.
William died, and DuPont’s retirement administrator paid out about $400,000 in benefits to Liv. As might be expected, William’s daughter, who was the executor of his estate, was quite upset with the turn of events and sued DuPont for the money.
The estate’s position was that SIP benefits were waived by Liv, therefore DuPont’s payment of benefits to Liv was a violation of ERISA. The district court held for the estate, and ordered DuPont to pay the benefits to it.
The Fifth Circuit reversed, claiming Liv could not waive her interest, as such a waiver is barred by ERISA. The Supreme Court granted certiorari and handed down its ruling in January.
Decision
One issue in the case is whether Liv’s waiver of William’s SIP benefits in the divorce decree constituted an assignment or alienation barred by ERISA.
ERISA states that retirement benefits cannot be “assigned or alienated”; however, ERISA exempts qualified domestic relations orders from that prohibition.
As the Supreme Court put it: “We granted certiorari to resolve a split among the Courts of Appeals and state supreme courts over a divorced spouse’s ability to waive pension plan benefits through a divorce decree not amounting to a QDRO. We subsequently realized that this case implicates the further split over whether a beneficiary’s federal common law waiver of plan benefits is effective where that waiver is inconsistent with plan documents.”
The court held that Liv’s waiver neither assigned nor alienated anything to William or his estate, so it did not violate ERISA. It also held that Liv’s waiver, although contained in a state divorce decree, served as a waiver under federal common law.
As the court pointed out, however, “the waiver’s escape from inevitable nullity under the express terms of the antialienation clause does not … control the decision in this case, and the question remains whether the plan administrator was required to honor Liv’s waiver with the consequence of distributing the SIP balance to the Estate. We hold that it was not, and that the plan administrator did its statutory ERISA duty by paying the benefits to Liv in conformity with the plan documents.”
Conclusion
In an aside, the Supreme Court stated that perhaps William’s estate has a claim against Liv for the money. The lesson is that practitioners should make sure their client knows to change the named beneficiary on ERISA plan documents, unless the client intends for a former spouse to receive a windfall.
Sara Stout Ashcraft is a partner in Ashcraft,≠Franklin,≠Young & Peters LLP. She concentrates her practice in the areas of matrimonial and family law.