Domestic Diversions

What happens when a former spouse never changes his beneficiary designation

The United States Supreme Court’s decision in KENNEDY v. PLAN ADMINISTRATOR (January 26, 2009) confirms that ERISA plans must follow ERISA. In footnote 10, the Court revealed what would happen in Michigan: the Plan would pay the former spouse, and the Estate would sue to recover the payment (constructive trust).

Justice Souter delivered the opinion for a unanimous Court (excerpt):
The Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 829, 29 U. S. C. §1001 et seq., generally obligates administrators to manage ERISA plans “in accordance with the documents and instruments governing” them. §1104(a)(1)(D). At a more specific level, the Act requires covered pension benefit plans to “provide that benefits … under the plan may not be assigned or alienated,” §1056(d)(1), but this bar does not apply to qualified domestic relations orders (QDROs), §1056(d)(3). The question here is whether the terms of the limitation on assignment or alienation invalidated the act of a divorced spouse, the designated beneficiary under her ex-husband’s ERISA pension plan, who purported to waive her entitlement by a federal common law waiver embodied in a divorce decree that was not a QDRO. We hold that such a waiver is not rendered invalid by the text of the antialienation provision, but that the plan administrator properly disregarded the waiver owing to its conflict with the designation made by the former husband in accordance with plan documents.

Footnote 10. Despite our following answer to the question here, our conclusion that §1056(d)(1) does not make a nullity of a waiver leaves open any questions about a waiver’s effect in circumstances in which it is consistent with plan documents. Nor do we express any view as to whether the Estate could have brought an action in state or federal court against Liv to obtain the benefits after they were distributed. Compare Boggs v. Boggs, 520 U. S. 833, 853 (1997) (“If state law is not preempted, the diversion of retirement benefits will occur regardless of whether the interest in the pension plan is enforced against the plan or the recipient of the pension benefit”), with Sweebe v. Sweebe, 474 Mich. 151, 156–159, 712 N. W. 2d 708, 712–713 (2006) (distinguishing Boggs and holding that “while a plan administrator must pay benefits to the named beneficiary as required by ERISA,” after the benefits are distributed “the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds”); Pardee v. Pardee, 2005 OK CIV APP. 27, ¶¶20, 27, 112 P. 3d 308, 313–314, 315–316 (2004) (distinguishing Boggs and holding that ERISA did not preempt enforcement of allocation of ERISA benefits in state-court divorce decree as “the pension plan funds were no longer entitled to ERISA protection once the plan funds were distributed”).


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