Court: QDRO Overrules Stock Plan Beneficiary Designation

June 12, 2003 ( - A previously determined qualified domestic relations order (QDRO) entitles a stock purchase plan administrator to recover a portion of plan benefits mistakenly paid to a deceased plan participant's former wife.

>A judge in the US District Court for the Western District of North Carolina, applying a common law unjust enrichment theory, ruled the QDRO clearly provided that the wife was only entitled to half of the participant’s plan benefits.   This was despite the fact that the plan administrator, Fidelity Investments, failed at the time the QDRO was issued to remove the participant’s former wife as the sole beneficiary of his plan assets, according to Washington-based legal publisher BNA.

Regardless of the administrator’s failure to take action sooner, the plan is not precluded from recovering benefits it overpaid the wife, inNeal v. General Motors Corp.   The court noted that since ERISA does not provide guidance on beneficiary designation disputes, the federal common law principal of an unjust enrichment theory applies.   Thus General Motors and Fidelity were entitled to a refund of 50% of the benefits paid to the plaintiff.

Refunding Payments

>Fredrick Marshall Neal, a former employee of General Motors Corp., participated in the company’s stock purchase plan during his tenure with the company.   As part of his participation, Neal designated his then wife, Marilyn Godby-Neal, as sole beneficiary of the plan.

>At some point during his participation in the plan, Neal and his wife divorced, and Neal did not change his beneficiary designation. However, a QDRO that was issued as part of the divorce provided that Godby-Neal was to receive only 50% of Neal’s total vested account balance. Although the QDRO was sent to Fidelity, the administrator failed to remove Godby-Neal’s name as sole beneficiary and, when Neal later died, Fidelity paid the entire account to Godby-Neal.

>When General Motors and Fidelity later asked that Godby-Neal return 50% of the benefits, Godby-Neal sued under ERISA seeking a determination that she was the sole beneficiary and was entitled to the entire account.

>However, the court found ERISA does not provide guidance on beneficiary designation disputes. And thus the common law standard could be applied, resulting in a ruling in favor of the defendant.

“[The] plaintiff should reasonably have expected to repay the monies, for she waived any rights to the remaining GM Plan assets pursuant to the QDRO,” the court said. “[S]ociety’s reasonable expectations would be defeated if [the] plaintiff were not required to return the monies, for the interests of society are best served by equitable decisions and by the proper administration of an ERISA benefits plan.”

The case is Neal v. General Motors Corp., W.D.N.C., No. 3:01CV662MU, 6/11/03.