Sorry it's been so long
since my last post. My goal is to have something up here weekly to help you, but the holidays & New Year have been
busier than I could have ever imagined. This story clearly explains that beneficiary forms MUST be correct. They
will always trump any other document, court ruling, etc. Enjoy...
Kennedy v. Plan Administrator for
DuPont
Savings and Investment Plan,
(No. 07-636, Decided January 26, 2009)
In a court
battle that has been ongoing since 2001, Kari Kennedy lost a $402,000 inheritance because the beneficiary form did not name
her as the beneficiary, even though that is what her father wanted. The United States Supreme Court UNANIMOUSLY
ruled that the ex-spouse receives the retirement plan money because she was named on the beneficiary
form - even though she waived her rights to that money in a divorce decree.
The high
court ruled that a company plan must pay the beneficiary named on the beneficiary form, even in light of contradictory signed
agreements. The Supreme Court ruling is the law of the land and there are no more appeals on this. The beneficiary form controls
who inherits the money and all of the Justices agree.
Facts of the Case
William
Kennedy died in 2001, three years after he retired from E.I. DuPont de Nemours & Company. He had worked 34 years for the
company where he contributed to the company plan (a Savings and Investment Plan - an ERISA qualified plan). He married Liv
Kennedy in 1971 and in 1974 he signed a beneficiary form naming her as the beneficiary of the SIP. There was no contingent
beneficiary named on this form. William and Liv divorced in 1994. Under the divorce decree, Liv waived her rights to any benefits
under his retirement plans. He wanted this plan balance of $402,000 to go to his daughter, Kari Kennedy, but he never changed
the beneficiary form on this plan. He did change it on another plan, but not on this one. After William's death, Kari,
as the executrix of his estate, asked DuPont to distribute the balance in the SIP to William's estate since Liv had waived
her rights to this money and there was no named beneficiary on the plan.
DuPont, going by the terms
of the SIP and the beneficiary form on file, instead paid the proceeds out to Liv, disregarding the waiver in the divorce
decree. Liv Kennedy died in 2007, but that did not change the result.
The Court Proceedings
The
estate then sued DuPont and the plan administrator for the funds. They made the claim that the divorce decree was a waiver
of the SIP benefits and that it was a violation of ERISA rules to distribute the funds to Liv. The District Court agreed with
the estate. DuPont appealed this decision. The Fifth Circuit Court reversed the District Court decision saying the waiver
was not valid since it was not a QDRO (qualified domestic relations order). Supreme Court Justice Souter stated that the case
was heard in order to decide who is entitled to the inheritance where the divorce decree is "inconsistent with the plan
documents."
The Supreme Court Decision
The justices unanimously
ruled that the daughter gets nothing. They reached the same decision as the Fifth Circuit Court, only
their decision is based on compliance with the written plan agreement rather than on the waiver issue. This is a major distinction.
The Supreme Court said you have to look at the terms of the plan and pay out the death distribution accordingly.
The person named on the beneficiary form gets the money.
From the Court:
"Under
the terms of the SIP Liv was William's designated beneficiary. The plan provided an easy way for William to change the
designation, but for whatever reason he did not. The plan provided a way to disclaim an interest in the SIP account, but Liv
did not purport to follow it. The plan administrator therefore did exactly what §1104(a)(1)(D) required: ‘the documents
control, and those name (the ex-wife).'"
The DuPont SIP plan allows a beneficiary to disclaim
plan benefits (not all plans will accept a disclaimer). Liv could have disclaimed the SIP plan within nine months of William's
death and the assets would have gone to his estate since there was no contingent beneficiary. This would have effectively
corrected the situation. But, she did not do this. In footnote 10 of the case, the Court did leave open the option that after
the funds were distributed to the exspouse, there could be a case against her to recover the funds based on her prior contractual
agreement (the divorce decree). In part, the footnote states that "the consensual terms of a prior contractual agreement
may prevent the named beneficiary from retaining those proceeds." Once the funds were distributed from the plan, they
were "no longer entitled to ERISA protection." But that is another story for another day. The bottom line is that
the ex-wife gets the money because she was named on the plan beneficiary form.
