ERISA does not bar post-distribution action to enforce waiver against beneficiary

ERISA does not preempt suits brought against an ERISA beneficiary following the distribution of benefits, according to the U.S. Court of Appeals in Richmond (CA-4). The decision, which accords with the prevailing view among the federal circuits, allowed a decedent’s estate to enforce a waiver of benefits against a beneficiary.

Waiver of benefits incorporated into divorce decree

A participant in company-sponsored 401(k) and life insurance plans named her husband as the primary beneficiary of her interest in the plans. In December 2008, the couple divorced and incorporated into the divorce decree a previously negotiated a marital settlement agreement pursuant to which the husband waived his interest in the plans of his former spouse.

The participant died in 2001, having failed to name a new beneficiary of her plan interests. Accordingly, the administrators of the 401(k) and life insurance plans determined that the proceeds of both plans should be paid to the former spouse, as the participant’s named beneficiary.

The participant’s parents, as administrators of her estate, appealed the administrators’ decision. In addition, they made a direct claim on the former spouse, demanding that he sign waivers renouncing his rights to the plan proceeds.

In response, the former spouse filed a suit in federal court seeking a declaratory judgment that ERISA preempted the waiver provisions in the marital settlement agreement. The administrators of the estate countered by filing suit against the former spouse in state court, asking that he be found in contempt of the marital settlement agreement and divorce decree and ordered to waive his rights to the plan proceeds.

The state court found the former spouse in contempt of the divorce decree and ordered him to take all actions necessary to renounce his interests in the plan benefits. The federal trial court, further, directed the plan administrator to pay the plan funds to the former spouse and then ordered the spouse to waive his rights to the funds and distribute them to the participant’s estate.

Post-distribution suits not inconsistent with ERISA objectives

Initially, the Fourth Circuit determined that permitting post-distribution suits would not be in consistent with the ERISA objectives of simple administration, avoiding double liability for plan administration and ensuring that beneficiaries “get what’s coming quickly.” Citing the Third Circuit (Estate of Kensinger v. URL Pharma, Inc., CA-3 (2012), 674 F.3d 131) the court explained that ERISA does not provide shelter from contractual liability to beneficiaries who have already received plan proceeds.

In concluding that ERISA did not prevent post-distribution suits, the court further noted that such actions do not conflict with ERISA as they do not require plan administrators to pay benefits to anyone other than the named beneficiary. The estate’s claim merely sought to enforce a state order that did not conflict with ERISA’s objectives.

Source: Andochick v. Byrd (CA-4).

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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