Plan Must Pay Ex-Husband Despite Estate Suit

March 13, 2013 (PLANSPONSOR.com) – A federal court decided that a deceased woman's retirement plan benefits must first be paid to her ex-husband despite a lawsuit by her estate requesting the funds.  

The 4th U.S. Circuit Court of Appeals agreed with a district court ruling that the Employee Retirement Income Security Act (ERISA) requires the retirement plan’s fiduciaries to pay the woman’s benefits to her ex-husband, even though a lawsuit brought by her estate may require him to hand over the benefits to the estate.  

The court noted in its opinion that in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, the U.S. Supreme Court held that an ERISA plan administrator must distribute benefits to the beneficiary named in the plan, regardless of any state-law waiver purporting to divest that beneficiary of his right to the benefits (see https://s3.amazonaws.com/si-interactive/prod/plansponsor-com/wp-content/uploads/2017/05/25040257/MagazineArticle.aspx_.jpg?id=4294989884 “Case Sensitive: Estate Planning”). In Kennedy, the Court emphasized three important ERISA objectives: “[1] simple administration, [2] avoid[ing] double liability [for plan administrators], and [3] ensur[ing] that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.”  

The court said allowing post-distribution suits to enforce state-law waivers does nothing to interfere with any of these objectives; Kennedy merely dictates that the plan administrator distribute plan benefits to the named beneficiary. This ensures simple administration regardless of whether post-distribution suits are permitted, because the plan administrator would have no role in any post-distribution proceedings. 

According to the appellate court’s opinion, in July 2006, Scott Andochick and Erika Byrd separated and entered into a marital settlement agreement, in which he waived any interest in Byrd’s 401(k) plan benefits. The couple’s divorce was finalized in December 2008. Then in April 2011, Byrd died and her parents became the administrators of her estate.  

However, despite that waiver, Byrd had not updated her beneficiary designation prior to her death. 

The 4th Circuit Court’s decision is available here.

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