Stepchildren Not “Children” for Purposes of Death Benefit

August 20, 2012 (PLANSPONSOR.com) – A federal appellate court has determined a plan administrator was right in bypassing a deceased retirement plan participant’s stepchildren when distributing his account.

Citing their close relationship with John Wayne Hunter, the fact that Hunter left his estate to them, and the fact that Hunter referred to them as his “beloved sons” in his will, Stephen and Michael Herring suggested that they were entitled to Hunter’s benefits under the Texas probate law doctrine of “equitable adoption” (“adoption by estoppel”). However, the 5th U.S. Circuit Court of Appeals said the Herrings misunderstand the doctrine of equitable adoption.   

“Equitable adoption” or “adoption by estoppel” of a child occurs when “one . . . promises or acts in a way that precludes the person and his or her estate from denying adopted status to the child.”  The doctrine has no broader application and does not create a legal parent-child relationship.  Nothing in the plan or the Employee Retirement Income Security Act (ERISA) required the plan administrator to incorporate the concept of equitable adoption into the plan definition of “children,” the court ruled.  

In reversing a lower court’s decision that the plan administrator abused her discretion by failing to consider the Herrings’ claim of adoptions by estoppels, the appellate court noted that during her initial review, the plan administrator found that the plan had not previously determined whether the term “children” as used in the plan included stepchildren who had not been legally adopted. She concluded that the term “children” meant biological or legally adopted children based on (1) the need for a uniform standard for determining who were “children” under the plan; (2) the administrative need for a practical and objective mechanism to avoid potentially burdensome and expensive investigations into a claimant’s status; and (3) her conclusion that the exclusion of stepchildren from the definition was most likely to align with the expectations of the majority of plan participants.  

According to the court’s opinion, the plan administrator was particularly concerned that many plan participants would not necessarily expect stepchildren to benefit from the plan absent affirmative designation by the participant since, in many cases, stepparents and stepchildren might not have a close relationship, and participants with both biological and stepchildren might not expect both to benefit.   

When she reviewed her initial determination after the Herrings’ 2008 challenge, the plan administrator applied these same considerations and also considered that including “equitably adopted” individuals under the definition of “children” would create substantial uncertainties and additional expenses for the plan by giving rise to disputes about whether individuals had been “equitably adopted.”  

When Hunter died, his spouse had predeceased him and he had no surviving parents and no biological or legally adopted children, so the plan administrator distributed the benefits -- which totaled more than $300,000.00 -- to Hunter’s six siblings. About two years later, the Herrings challenged the distribution, arguing that they were Hunter’s “children” and should have been given priority over Hunter’s siblings.   

The plan administrator conducted a second review, and again determined that Hunter’s stepsons were not entitled to collect benefits under the plan. The Herrings then filed suit.  

After a bench trial, the district court found for the Herrings, and denied the plan administrator’s counterclaim for a declaratory judgment.  

The opinion in Herring v. Campbell is at http://www.ca5.uscourts.gov/opinions/pub/11/11-40953-CV0.wpd.pdf.  

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