According to Robert G. Spector, the Glenn R. Watson Chair and Centennial Professor of Law at the University of Oklahoma Law Center, on February 19, 2008,the United States Supreme Court accepted cert on Kennedy v. E.I. Dupont, 497 F.3d 426 (5th Cir. 2007). The issue that the Court will consider is limited to the issue of whether a qualified domestic relations order ("QDRO") is the only valid way a divorcing spouse can waive her right to receive her ex-husband's pension benefits under ERISA.
Kennedy v. E.I. Dupont involves a wife who waived her right to receive any part of her husband's "saving and investment plan" provided by Dupont by a provision in the divorce judgment . The plan qualifies as a covered ERISA plan. After the divorce, the ex-husband did not change his beneficiary designation. He died. The plan paid the ex-wife and the ex-husband's estate sued the pension plan.
The 5th Circuit held that the waiver of the wife's beneficial interest in the divorce decree was prohibited by ERISA's anti-alienation provision. It decided that the only method by which a participant's or beneficiary's interest in an ERISA-covered plan can be accomplished is by QDRO.
This decision has family lawyers around the country concerned. It is common to draft a judgment of divorce in which each party waives the right to receive any portion of the other spouse's pension. The problem is, not all people who get divorced remember to change the beneficiary of pension plans. Many lawyers are concerned about liability because of the lawyer's failure to effectively award the entire pension to the spouse entitled to it.
Spector said: "The court also noted that the cases involving waivers of ERISA-covered life insurance policies are not applicable here since those are welfare plans and not pension plans there therefore the anti-alienation provisions are not applicable."
On the State Bar of Michigan Family Law Listserv, Sancra Glazier has this to say:
"No matter the outcome of the US Supreme Court case, Michigan law has long provided relief under the circumstances presented. The remedy, however, is not based upon compelling a plan administrator to turn funds over to the participant's alternate beneficiaries or his/her estate, but rather one brought by the person/entity that would have received the benefits against the ex-spouse named beneficiary whose rights were waived under the terms of the parties' judgment. These cases use either a constructive trust or waiver theory to bar the beneficiary whose designation wasn't revoked with the plan administrator from retaining the benefits contrary to the terms of the parties property settlement agreement or judgment."
Sandra refers us to the following cases:
-Pruchno v Pruchno, unpublished Mich App docket no. 245583 (7/8/04);
-Mac Innes v. Mac Innes, 260 Mich App 280 (2004);
-In re Estate of Juskusky, Dec’d, unpublished Mich App docket no. 246246 (6/17/04);
-Moore v. Moore, 266 Mich App 96 (2005);
-Sweebe v. Sweebe, 451 Mich 151 (2006);
-Metropolitan Life Insurance Company v. Christine L. Mulligan, et al., ( a US District Court, Eastern District of Michigan, Northern Division, (decided 6/28/2002)
The issue is obviously of tremendous importance since there is a conflict in the circuits.
Robert June, an attorney in Ypsilanti, opines:
I think it’s dangerous to rely on state supplemental remedies, particularly now that the Supreme Court has made it clear that ERISA preempts any state law that so much as “supplements” the remedies available under ERISA. Aetna Health, Inc. v. Davila, 542 U.S. 200, 207-09 (2004). It is hard to come up with a preemption provision that is broader than the ERISA preemption provision. The post-distribution redistribution concept also may create a slippery slope problem. If you can overcome the lack of a QDRO by imposing a post-distribution constructive trust on ERISA life insurance proceeds, why can’t you do the same for other ERISA benefit proceeds, and why do we need QDROs at all if we can get around them by imposing constructive trusts on the proceeds?
Given the stark conflict between 6th Circuit and Michigan law on the beneficiary designation issue, I think it is good that the Supremes are taking the Kennedy case and hopefully clearing up the conflict one way or the other. Until then, the safest way to handle this is to have the client make the change in the beneficiary designation at the time of entry of the judgment. Another safeguard may be to make the waiver of beneficiary terms specific enough to “substantially comply” with ERISA’s QDRO requirements. Metropolitan Life Ins. Co. v. Marsh, 119 F.3d 415, 421-22 (1997).
The underlying 5th Circuit opinion which the US SCT took cert on is available here.
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