Benefit Award to Participant's Ex-Wife Upheld under ERISA

August 16, 2007 ( - A federal appellate court has thrown out a lower court decision awarding the estate of a retirement savings plan participant his benefits, saying the employee's ex-wife never gave up her rights to that money.

The 5 th  U.S. Circuit Court of Appeals ruled that because a qualified domestic relations order (QDRO) was never submitted to the plan when the participant and his wife divorced, she did not relinquish her interest in the participant’s savings and investment plan (SIP) benefits.

So the benefits award to the estate by a judge in the U.S. District Court for the Eastern District of Texas was actually barred under the Employee Retirement Income Security Act’s (ERISA) anti-alienation provision, the appellate judges asserted.

Circuit Judge Rhesa Hawkins Barksdale, in writing for the court, said the federal law governing this action could be drawn from ERISA instead of using federal common law. According to the court, the SIP complied with the anti-alienation provision.

According to the court’s case history, William Kennedy was a participant of the DuPont Savings and Investment Plan when he was married to Liv Kennedy. Kennedy executed a beneficiary designation form naming his wife as the SIP’s sole beneficiary.

The Kennedys divorced in 1994 and Liv Kennedy agreed to give up her rights in her husband’s retirement and pension plans. The parties executed a QDRO that the court said was not submitted to DuPont.

William Kennedy’s estate demanded when he died in 2001 that it receive his SIP benefits since, the state claimed, Liv Kennedy had waived her rights to the SIP in the divorce. However, the plan argued that beneficiary designation still controlled and subsequently paid out Kennedy’s benefits to his ex-wife.

The estate sued and the lower court judge agreed, holding that under federal common law, Liv Kennedy had waived her right to the SIP benefits by executing a divorce decree.

In the 5 th Circuit opinion, Barksdale rejected the estate’s argument that knowing and voluntary waivers of retirement benefits pursuant to settlement agreements are not included in ERISA’s anti-alienation provision. The judges claimed that in a divorce, a QDRO supplies the sole exception to the anti-alienation provision.

If a state domestic relations order qualifies as a QDRO, ERISA requires the plan to pay benefits in accordance with it, the court said. As such, the court reasoned that the federal common law approach was in conflict with the QDRO scheme created by ERISA, which recognizes the right to designate alternate payees under certain circumstances.

The appellate court ruling in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan,   5th Cir., No. 05-41851, 8/15/07 is here .