Determining the Death Beneficiary Under an ERISA Plan and the Rights of Such a Beneficiary
'Determining the Death Beneficiary Under an ERISA Plan and the Rights of Such a Beneficiary', 54 Tax Management Memorandum 323 (August 26, 2013)
20 Pages Posted: 26 Aug 2013 Last revised: 16 Mar 2015
Date Written: August 26, 2013
Administrators of employee benefit plans governed by the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), often struggle to determine who is entitled to be paid survivor benefits. Trusts and estates attorneys often struggle to determine who, if anyone, may use state law to wrest benefits from the person entitled to receive survivor benefits from an ERISA plan. Two Supreme Court decisions appeared to have resolved these issues. Boggs v. Boggs, and Egelhoff v. Egelhoff held that the person entitled to the benefits under the designation terms of an ERISA is entitled to be paid the benefits by the plan, and no one may use state law to wrest the benefits from such designee. The Supreme Court questioned whether wresting of benefits is permitted in Kennedy v. Plan Administrator of the DuPont Sav. & Inv. Plan. That question seems to have been laid to rest by this year’s Supreme Court decisions in Hillman v. Maretta, and U.S. v. Windsor.
Although there are many court decisions to the contrary, ERISA preempts state orders requiring Top-Hat Plans and life insurance plans to defer to domestic relations orders that have QDRO characteristics, when such orders are inconsistent with plan terms. In contrast, state laws, including testamentary requirements, may govern accrued but unpaid compensation at an employee’s death that are not ERISA benefits, such as wages, commissions, and bonuses.
Although there are many court decisions to the contrary, ERISA preempts any state law order that directs (1) a participant to make beneficiary designations, or (2) a beneficiary to waive or consent to the waiver of benefit entitlements. Although there are many court decisions to the contrary, ERISA preempts state laws that compel duly designated beneficiaries to give up their ERISA survivor benefit or the value of the benefit, such as (1) revocation on divorce statutes inconsistent with plan terms; (2) waivers in domestic relations orders that are inconsistent with plan terms, such as the spousal survivor benefit terms certain pension plans called Spousal Survivor Benefit Plans; (3) prenuptial or post-nuptial agreements that are inconsistent with plan terms, such as the terms that Spousal Survivor Benefit Plans must contain; and (4) elective-share laws or community-property laws that are inconsistent with plan terms.
The article suggests plan policies and provisions to minimize ambiguous beneficiary designations while fulfilling the participant’s intentions, such as the use of plan beneficiary designation template that clearly describes the consequences of one or more beneficiaries predeceasing the participant and limit beneficiary choices. This article also discusses how Federal common-law rather than state common-law determines how the doctrines of fraud, undue influence, substantial compliance, and the capacity to make designations apply to determining the effectiveness of beneficiary designations.
This article suggest that an ERISA plan confronted with conflicting benefit claims is required to decide simultaneously which claims, if any, to accept, and the claims, if any, to deny, and then if any of the denied claims are appealed to give the accepted claims a chance to respond, and decide simultaneously, which ones on appeal, if any, to accept, and which to deny. The DOL has suggested be given to have the plan inter-plead if there continues to be a conflict about the benefit entitlement at this point, so that the conflicting parties may resolve the issue at no further cost to the plan even if the plan is totally responsible for the dispute. This article suggests that inter-pleader is generally appropriate for QDRO disputes. However, this article suggests for other disputes ERISA plans are required to (1) pay the successful claimant his or her benefit, and (2) to defend its denial decision if challenged in the same manner as it would defend any other benefit denial.
Keywords: beneficiary, dispute, ERISA, survivor benefits, estates, trusts, domestic relations, employee benefit, preemption, waiver, community property, elective share
JEL Classification: G22, G23, J12, J26, J32, K12, K19
Suggested Citation: Suggested Citation