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tricky death benefit question


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A participant in an ERISA 403b plan passes away.  She named her spouse as beneficiary and son as contingent beneficiary.  Years before her passing, she divorced then remarried, but never changed the beneficiary form.  

Is the beneficiary form with the ex-spouse still applicable under ERISA?

This is taking place in New York, which has a divorce revocation statute, which would seem to no longer permit the ex-spouse to be a beneficiary.  But would NY state law take precedent over ERISA if ERISA would call for the ex-spouse to be the beneficiary, since the form was never changed?  And if the ex-spouse is not the beneficiary, would the contigent beneficiary (the son) now be the beneficiary would the current spouse be the beneficiary?

I am not sure if a QDRO was ever produced after the divorce.

We are having an attorney look into this but I was hoping for any comments on this as we go along.

Thank you

 

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What does the plan document say? 

If there is a QJSA/QPSA requirement that applies to the benefit, then the spouse at the the time of death has a right to at least 50% of the account if distributions hadn't yet commenced.  Whether any non-QPSA portion is payable to the prior spouse depends on what the plan says about non-spouse beneficiary designations (state laws on this are generally preempted and don't apply unless the plan says otherwise).

If distributions had commenced, then the death benefits go to the spouse unless the spouse consented to payment to another beneficiary.

If there is no QJSA/QPSA requirement, then 100% of the death benefit would be payable to the current spouse under ERISA section 205 unless that spouse consented to naming a different beneficiary.  Whether the prior designation was revoked upon divorce is moot.

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The plan does not have QJSA or QPSA.  Lump sum only distribution option.

The plan does require spousal consent to name a beneficiary other than the spouse.

Benefits had not commenced at time of death.

I looked at ERISA 205.  Am I correct then that the reasoning behind the new spouse being beneficiary is that he never waived his right to the benefit, even though he was never named as beneficiary (and even though the ex spouse still has a beneficiary form on file)?

 

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If the plan is ERISA-governed, New York’s or any State’s law about how a divorce might affect a beneficiary designation is superseded. ERISA § 514, 29 U.S.C. § 1144; Egelhoff v. Egelhoff, 532 U.S. 141, 25 Empl. Benefits Cas. (BL) 2089 (2001).

As Lou S. mentions, a plan’s governing documents might or might not provide that a divorce revokes an earlier beneficiary designation. See Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 45 Empl. Benefits Cas. (BL) 2249 (2009).

To the extent that an ERISA-governed individual-account plan does not provide ERISA § 205 survivor annuities, such a plan provides that the participant’s surviving spouse gets the account, unless that spouse consented to a different beneficiary designation. ERISA § 205(b)(1)(C), 29 U.S.C. § 1055(b)(1)(C).

A qualified domestic relations order may provide that an alternate payee who is a former spouse of the participant be treated as the participant’s surviving spouse for all or some ERISA § 205 purposes. Such a provision could wholly or partly deprive the participant’s actual surviving spouse of a benefit to which the surviving spouse otherwise might become entitled. ERISA § 206(d)(3)(F)(i), 29 U.S.C. § 1056(d)(3)(F)(i).

A contingent beneficiary designation has no effect until all spouse benefits under ERISA sections 205 and 206 are exhausted.

Anything on BenefitsLink is only general information, not advice, and might not fit your situation.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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I think you might be well served by waiting until you find out if a QDRO was received by the Plan and accepted.  That will resolve the issue. 

Here is the New York law -https://jdbar.com/statutes/eptl-5-1-4/

It looks like a divorce will revoke a beneficiary designation in a pension or retirement plan, but only if the decedent had the power to revoke the beneficiary designation.  A QDRO or an Agreement might have made it irrevocable.   

Here are 28 New York cases that address that section of the code in connection with pension and retirement plans. https://scholar.google.com/scholar?hl=en&as_sdt=4%2C33&q=EPTL+5-1.4+retirement+pension&btnG=

Why does everyone assume that the participant's failure to name a new beneficiary was a mistake.  Maybe there was an Agreement that she would do so.  Maybe the participant made a conscious decision to maintain her ex-husband as beneficiary - perhaps to care for a disabled family member.  Her intend may not matter to the outcome, but you know what they say happens when you assume. 

DSG  

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On 1/20/2023 at 4:56 PM, fmsinc said:

Here is the New York law -https://jdbar.com/statutes/eptl-5-1-4/

It looks like a divorce will revoke a beneficiary designation in a pension or retirement plan, but only if the decedent had the power to revoke the beneficiary designation.  A QDRO or an Agreement might have made it irrevocable.   

Here are 28 New York cases that address that section of the code in connection with pension and retirement plans. https://scholar.google.com/scholar?hl=en&as_sdt=4%2C33&q=EPTL+5-1.4+retirement+pension&btnG=

What is your basis for looking at New York state law to determine who is a beneficiary under an ERISA 403(b) plan? 

Unless the plan document provides that beneficiary designations are subject to state law, the impact of divorce on a beneficiary designation would be determined under federal law and the terms of the plan...

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