Compliance June 26, 2003

Court: Widow Can't Get Unselected Pension Payout Option

June 26, 2003 (PLANSPONSOR.com) - The widow of a dead pension plan participant isn't entitled to surviving spouse benefits on top of those selected by her husband on the assumption that the husband would have chosen differently had he been given more information, a court said.

Reported by

Fred Schneyer

>In affirming a lower court ruling, the US 3 ^rd Circuit Court of Appeals said it was too “speculative” to assume Leo Cagna would have acted differently when he selected his pension payout options from Weirton Steel Corp.

>Even though a Weirton form setting out the automatic 50% spouse option did not satisfactorily explain the consequences of selecting it, the court found that the form’s deficiencies did not require Weirton to now provide Ellinora Cagna with that benefit option.”First, Mrs. Cagna had the opportunity to inquire about the various options, but she signed the form indicating that she consented” to Leo’s election to waive the 50% spouse option, the appeals court said. “Second, the desire of Mrs. Cagna that we give effect to her ‘choice,’ after the fact, of the unexplained option is too speculative. For one thing, the choice was admittedly that of her husband. Under the retirement plan and ERISA, her only role was to evidence her understanding of and agreement in the waiver.”

>According to the appeals court, the Cagnas met with a Weirton representative to discuss pension plan payment options. The representative presented the couple with four choices, including a surviving spouse benefit option and an “automatic 50% spouse” benefit.

>Under the surviving spouse benefit, Leo would receive an unreduced monthly benefit payment and, in the event of his death, Ellinora was to receive $521 per month. Under the automatic 50% spouse benefit, Leo was to receive a reduced pension payment and, on his death, his wife would receive the $521 per month surviving spouse benefit, along with an additional $990 per month.

>The Cagnas selected the surviving spouse benefit option. According to the court, in selecting this option, Leo signed a form acknowledging his rejection of the automatic 50% spouse benefit. Ellinora also signed a form specifically consenting to Leo’s waiver of the automatic 50% spouse option.

>On her husband’s death, Ellinora claimed that she was not provided with adequate information about the automatic 50% spouse benefit and, had she received sufficient information, she would have selected that option. A judge in the US District Court for the Western District of Pennsylvania ruled in favor of Weirton and Ellinora appealed.

>The case is Cagna v. Weirton Steel Corp. Retirement Plan–Plan 001, 3d Cir., No. 02-2547, unpublished 6/23/03.