Decedent’s stepchildren not entitled to plan benefits under state equitable adoption law

A plan administrator was not required under plan terms or ERISA to apply a state law doctrine of equitable adoption to provide the benefits of a deceased participant to his stepchildren, the U.S Court of Appeals in New Orleans (CA-5) has ruled.

Failure to designate beneficiary gives rise to claims of stepchildren

A plan participant designated his wife as his primary beneficiary, but did not designate a secondary beneficiary. Subsequent to his wife’s death, the participant did not designate a new beneficiary. Following the participant’s death, his benefits (totaling over $300,000) were distributed, in accordance with state law and plan terms, to his siblings.

The participant’s stepsons had claimed the benefits under the Texas probate law doctrine of “equitable adoption” (i.e., “adoption by estoppel”). Underlying the stepsons’ claim were the facts that the participant referred to them as his “beloved sons” in his will and had left his estate to them.

The plan administrator, however, rejected the claims of the stepsons, initially reasoning that they were not entitled to the participant’s benefits as his “biological or legally adopted” children. Upon subsequent review of her determination, the plan administrator concluded that including equitably adopted individuals under the plan’s definition of children would create substantial uncertainty and additional expenses for the plan by giving rise to disputes about whether individuals had been equitably adopted.

In the resultant litigation, a federal trial court ruled that plan administrator abused her discretion in rejecting the stepsons’ claim. The plan administrator appealed.

Plan administrator’s decision was legally correct

The initial issue on appeal was whether the plan administrator’s interpretation was legally correct. Noting that the plan administrator’s decision was based on the need to provide a uniform plan interpretation and avoid the unanticipated costs that could arise incident to adoption of the stepson’s position, the appeals court reversed the trial court. The administrator’s position was not inconsistent with a fair reading of the plan, the court concluded.

Incorporation of equitable adoption not required by ERISA or plan

With respect to the issue of equitable adoption, the court explained that the doctrine applies when a party promises or acts in a way that precludes the party and his or her estate from denying adopted status to a child. The doctrine does not, the court noted, create a legal parent-child relationship. Most significantly, however, the court stressed that the plan administrator was not required by the terms of the plan or ERISA to incorporate the concept of equitable adoption into the plan’s definition of children.

Source: Herring v. Campbell (CA-5).

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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