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Supreme Court (Again) Says Plan Administrator May Rely on Beneficiary Designation

The U.S. Supreme Court has ruled that plan administrators may rely on the documents governing the plan, and have no duty to look beyond those documents, to determine the beneficiary of a deceased plan participant.

In Kennedy v. DuPont Savings and Investment Plan, issued on January 26, 2009, the Court held that the plan administrator of a retirement plan properly paid benefits to a deceased participant’s ex-spouse (who was still the participant’s designated beneficiary at the time of the participant’s death), even though the ex-spouse had apparently waived her right to benefits under the plan in the parties’ divorce decree.


This is the second time since 2000 that the Supreme Court has addressed the question of how plan administrators should deal with an increasingly common problem: the participant who names his or her spouse as plan beneficiary, but later divorces without filing an updated beneficiary form. If such a participant dies before all plan benefits have been distributed, and if the last beneficiary form completed by the participant still names the former spouse, the plan administrator may face conflicting claims by both (i) the participant’s ex-spouse, who is the named beneficiary, and (ii) the participant’s estate or surviving family members.

In its 2001 holding in Egelhoff v. Egelhoff, the Supreme Court held that plan administrators of ERISA-covered plans need not look to state law in determining a beneficiary’s status. In that case, the court determined that ERISA preempted a Washington state statute providing that any designation of a person’s spouse as the beneficiary of a nonprobate asset is revoked in the event of divorce. Prior to that decision, the federal courts of appeals had split on whether ERISA preempts state laws governing the effect of divorce on beneficiary designations. In Egelhoff, the court found that the statute ran counter to the requirement in Section 402(b)(4) of ERISA that a plan “specify the basis on which payments are made to and from the plan,” as well as the requirement in Section 404(a) (1)(D) of ERISA that plan fiduciaries administer the plan “in accordance with the documents and instruments governing the plan.” Accordingly, the court held that the Washington state statue was preempted by ERISA.


Last year, the Supreme Court agreed to hear the Kennedy case to resolve yet another split among the federal courts of appeals (and certain state supreme courts) as to whether the designation of an ex-spouse as beneficiary could be effectively waived in a marital settlement agreement or divorce decree that is not a qualified domestic relations order (a “QDRO”). One view was that plans should follow “federal common law” and allow for such a waiver. The opposing view directed plan administrators to follow the plan documents and beneficiary designations on file.

In its unanimous holding in Kennedy, the Supreme Court held in favor of the latter view, sometimes referred to as the “plan documents” rule. Specifically, the Court found that, although the waiver of benefits in the divorce decree did not a violate the anti-alienation provisions of ERISA, the plan administrator did its ERISA duty by paying the retirement benefits to the ex-spouse in conformity with the plan documents. In other words, the plan administrator properly disregarded the waiver provision in the divorce decree because it conflicted with the latest beneficiary designation on file.

Interestingly, the plan in this case would have accepted a “qualified disclaimer” under the Tax Code, but no such disclaimer was filed by the ex-spouse. Although the ex-spouse “waived” her right to the participant’s benefit at the time of the divorce, she apparently chose not to “disclaim” the $400,000 benefit that became payable to her upon the participant’s death.


This ruling is generally seen as good news for employers and plan administrators. In combination with the Egelhoff decision, it means that plan administrators need not look beyond the documents governing the plan (including beneficiary designation forms completed by plan participants) to determine the rightful beneficiary of a deceased plan participant’s interest under the plan. The Egelhoff case established that plan administrators need not be concerned with state laws that purport to revoke the designation of a former spouse upon divorce, and the Kennedy case now establishes that administrators do not need to look outside the plan documents to determine whether a former spouse has “waived” his or her interest under the Plan.

The court did indicate, however, that a plan administrator that follows the terms of a QDRO is essentially enforcing a plan document. Thus, a plan administrator may not ignore a valid QDRO or disclaimer that is filed in accordance with the terms of the plan. However, the plan administrator need not look at other documents (such as a divorce decree that does not qualify as a QDRO) to resolve what the court characterized as “factually complex and subjective” waiver issues, such as whether a waiver is voluntary or addresses the particular benefits at stake.


Although this ruling provides more certainty for plan administrators, it also means that plan participants must be diligent in updating their beneficiary designations. Participants going through a divorce cannot rely on language in the divorce decree to change the effect of a prior beneficiary designation; they must complete a new beneficiary designation form.

Moreover, as the Court pointed out, because QDROs by definition assign benefits to alternate payees, a beneficiary seeking only to relinquish his or her right to benefits cannot do so through a QDRO. Thus, plan administrators may wish to have other procedures in place (such as a procedure for accepting Tax Code disclaimers) that will allow a beneficiary to renounce a benefit under the plan. Plan sponsors might also consider adopting plan provisions that automatically revoke spousal beneficiary designations upon divorce.