Precept Employee Benefits Blog

Judicial Developments 2008/2009

In the final case of our judicial development 2008/2009 series, we will be focusing on the Kennedy vs. Plan Administrators for Dupont Savings & Inv. Plan.

Kennedy v. Plan Administrators for Dupont Savings

Background:

In Kennedy vs. Plan Administrators for DuPont Savings & Inv. Plan, Kari Kennedy, the daughter of William Kennedy and the executor of his estate, tried to recover approximately $400,000 that had been paid to her father’s ex-wife, Liv Kennedy. Mr. and Mrs. Kennedy divorced in 1994, and at that time Liv voluntarily waived her right to receive benefits as part of her property settlement under the Savings and Investment Plan (SIP) sponsored by DuPont. Subsequently, Mr. Kennedy never removed his ex-wife’s name from the beneficiary form on file with DuPont. Once Mr. Kennedy passed away, over seven years later, DuPont distributed his SIP benefits to his ex-wife (the named beneficiary).

In response, Mr. Kennedy’s estate sued, claiming that Liv surrendered her rights under the divorce decree. The District Court entered a summary judgment in favor of William’s estate and ordered DuPont to pay the benefits to the Estate. The case then went before the Fifth Circuit Court of Appeals where they reversed the holding, ruling that Liv’s waiver of the benefits would have amounted to an “illegal diversion of benefits to someone else, in violation of ERISA’s provision against such diversion (or “alienation”). ‘A state court divorce decree,’ the Circuit Court said, ‘is technically not the kind of paper diversion of plan assets that ERISA allows because it was not a Qualified Domestic Relations Order (QDRO), in the phrasing of ERISA.’” It is interesting to note that other Circuit Courts have ruled that a divorce decree could amount to a waiver of benefits even though it isn’t a domestic relations order specified by ERISA,.

Kari Kennedy petitioned the Supreme Court and they agreed to rule on the case.

Result:

The Supreme Court ruled against the estate. The Court first ruled that, under ERISA, a divorcing spouse could waive plan benefits through a divorce decree under state law. The Court, however, disagreed with the Fifth Circuit’s ruling and stated, “we think that the better view is that Mrs. Kennedy’s waiver” was not an alienation or assignment that was illegal under ERISA. The Court held that ERISA provide no exception to a plan administrator’s duty to act in accordance with plan documents. The plan documents allowed DuPont to pay benefits to a participant’s designated beneficiary and specified the manner in which beneficiary designations and changes were to be made. The Court concluded, “William’s designation of Liv as his beneficiary was made in the way required; Liv’s waiver was not.”

Impact:

This case stresses the importance of updated beneficiary information and what constitutes ERISA approved designation or waiver beneficiary designation campaigns to ensure initial appointment by participants and on-going updates. For plans transitioning from paper elections to on-line beneficiary designation, it may be an opportune time to emphasize the importance of this simple but critical enrollment step.

For more information, please read:

http://www.lhdl.com/news/enewsletter_article_detail.cfm?ARTICLE_ID=311 (source)

http://www.scotusblog.com/wp/?s=kennedy+dupont (source)