Tags: Federal Law



What happens if a divorced spouse fails to change the beneficiary designation in an ERISA plan

Occasionally I am called upon as part of my Grand Rapids, Michigan estate planning practice to give an opinion as to what happens if a divorced spouse fails to change the beneficiary designation in an ERISA plan from the other ex-spouse to the person's own estate (Trust) or someone else (e.g., children). Although Michigan law suggests that the judgment of divorce controls, Michigan law is pre-empted by federal law if it is an ERISA governed plan.

Recently, the U.S. Supreme Court Case, Kennedy v. Plan Adm. for DuPont Savings and Investment Plan, 555 US 285, 129 S Ct 865 (2009) ruled that an ex-spouse cannot waive an interest in a former spouse’s ERISA-governed pension plan through the divorce decree alone. The Estate sued the pension plan to recover the pension benefits wrongfully paid to the former spouse under the terms of the Judgment of divorce. In a unanimous decision, written by Justice Souter, the Court held that the employer did not err in paying benefits to the former spouse even though the Judgment of divorce provided otherwise. 

The U.S. Supreme Court held: 

"ERISA provides no exception to the plan administrator's duty to act in accordance with plan documents. Thus, the Estate's claim stands or falls by “the terms of the plan,” 29 U.S.C. § 1132(a)(1)(B), a straightforward rule that lets employers “‘establish a uniform administrative scheme, [with] a set of standard procedures to guide processing of claims and disbursement of benefits,’” Egelhoff v. Egelhoff, 532 U.S. 141, 148, 121 S.Ct. 1322, 149 L.Ed.2d 264. By giving a plan participant a clear set of instructions for making his own instructions clear, ERISA forecloses any justification for enquiries into expressions of intent, in favor of the virtues of adhering to an uncomplicated rule. ... This case points out the wisdom of protecting theplan documents rule. Under the SIP, Liv was William's designated beneficiary. The plan provided a way to disclaim an interest in the SIP account, which Liv did not purport to follow. The plan administrator therefore did exactly what § 1104(a)(1)(D) required and paid Liv the benefits."

Kennedy v Plan Adm'r for DuPont Sav & Inv Plan, 555 US 285; 129 S Ct 865, 867; 172 L Ed 2d 662 (2009)

In light of the Kennedy decision, to ensure that a divorcing spouse’s intent to waive her interest in the pension plan is effectuated, lawyers must get the proper forms from the plan administer before the entry of the Judgment of Divorce and make sure the waiving spouse signs them contemporaneously with the entry of the Judgment.

Michigan law provides that a Judgment of Divorce must either extinguish or preserve in the Judgment any and all rights of a party in any policy or contract of life insurance, endowment or annuity upon the life of another, in which the spouse was named or designated as beneficiary, or to which he/she became entitled by assignment or change of beneficiary during the marriage or in anticipation of marriage.

However, in Metropolitan Life vs. Pressley, 82 F3d 126 (6th Cir. 1996) the Court held that the waiver in a Judgment of Divorce was not enough. A party must also affirmatively terminate his or her spouse as a beneficiary of an insurance policy because the provisions of ERISA preempt any portion of Michigan law that attempts to indicate otherwise. Therefore, after entry of a judgment of divorce, the ex-spouse should also change the beneficiary on his or her life insurance, endowment or annuity or risk allowing the other ex-spouse to take the asset as an arguably unintended beneficiary. It is not the "intent" of the parties that governs, but rather what the documents themselves say that controls. Put even more simply, a divorce decree itself does not change the ERISA contract beneficiary designation.

So, again, ERISA pre-empts state law, and even though a person might be an "ex-spouse," if they remain named in the ERISA governed plan documents as the named "beneficiary," that named ex-spouse will have a right to receive the beneficiary payment under the ERISA governed plan.

Very truly yours,


Paul A. Ledford, Esq.
Ledford & Associates


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