Albert F

The Supreme Court decided in Guidry V. Sheet Metal Workers National Pension Fund et al., 493 U.S. 365 (1990) that ERISA prevented a union from imposing a constructive trust on pension benefits from a collectively bargained pension plan for funds embezzled by union officer from the union. Thus, funds may not clawed back from the company 401(k) plan, if it is an ERISA plan, for funds embezzled from the company by a plan participant. There is a question whether ERISA permits the employer to obtain the pension plans after they have been distributed to the participant. State law usually protects such benefit distributions from creditor claims, whether the plan is an ERISA plan or not. See, e.g., Guidry v. Sheet Metal Workers National Pension Fund_39_F3d_107 (10th Cir. 1994). It should be noted even under the Mandatory Victims Restitution Act of 1996, the federal act that permit the garnishment of pension benefits, regardless of ERISA or state law restrictions, for restitution or the payment of federal fines, garnishments are limited by the Consumer Credit Protection Act, 15 U.S.C. 1673. However, the participant may decide to voluntarily direct the plan to pay benefits in whole or in part to the employer in the course of negotiating a plea bargain as discussed above. Best wishes

Let me clarify one point first. Individual retirement arrangements that are not part of ERISA plans are subject to state beneficiary designation rules. The IRS did not hold that the state lacked authority to reform a beneficiary designation in PLR 201628005. In fact, on page 5 the IRS stated, “In addition, although the Court order changed the beneficiary of IRA X under State law, the order cannot create a “designated beneficiary” for purposes of section 401(a)(9).” The IRS held that this change, however, was not effective int the determination of whether the designee was the decedent’s estate at the time of his death for purposes of determining the required Section 401(a)(9) minimum distributions. RTK is correct that the plan terms determine the beneficiary of an ERISA plan, which I presume is the case with the 401(k) plan at issue. The Supreme Court has consistently held that ERISA preempts any state law that is contrary to the terms of an ERISA plan. See Boggs v. Boggs, 520 U.S. 833 (1997); Egelhoff v. Egelhoff, 532 U.S. 141 (2001), and Kennedy v. Plan Adm’r of DuPont Sav.& Inv. Plan, 555 U.S. 285 (2009 See generally Albert Feuer, When Do State Laws Determine ERISA Plan Benefit Rights?, 47 J. MARSHALL L. REV. 145, 282-292 (Fall 2013), abstract and full article available at http://ssrn.com/abstract=2440008. The practical question is what does one do when one represents a plan that is confronted with a state-law order with respect to a benefit claim that ERISA preempts. First, I would call the lawyer on the other side and explain that ERISA preempts his order, but the plan will consider his client’s benefit claim under the plan’s claims procedures, and you can then determine if there is any basis under the plan terms for his client's claim, such as the designation being ambiguous. If that does not work, you have two litigation choices. First, respond in state court that the order is preempted under conflict preemption, and cite the above Supreme Court decisions. This, however, means one has to appeal through the state courts, if one can’t persuade the local court to withdraw its order. Second, rely on 28 U.S.C.S. § 1441(a) to remove the matter to federal court on the basis that ERISA completely preempts a state-law benefits claim, which is what the court order is seeking to achieve. See generally Metropolitan Insurance Co. v. Taylor, 481 U.S. 58 (1987). Most benefits attorneys prefer the latter approach.

RatherBeGolfing is correct that a plan adoption agreement is an “instrument under which the plan is established or operated,” which the plan administrator is required to provide to a plan participant that makes a written request for plan governing documents. ERISA §104(b)(4). Participants requests the plan adoption agreement for two reasons. First, to determine which plan options, such as plan contribution rates, were selected by the plan sponsor. Second, to determine, what was the latest adoption agreement duly executed by the plan sponsor. Thus, participants often also ask for the resolutions authorizing the plan sponsor to execute the adoption agreement, so that the agreement determines the plan terms.

Dear Luissaha, It is not clear why the participant/employee would care whether the beneficiary is the employee or the employee’s children. • If the employee were rich, the employee could be concerned about a unified gift and estate tax liability from the transfer. However, for federal tax purpose this would require an individual to expect to transfer $5,490,000, and a married couple to transfer twice this amount. It may be that the participants resides in a state in which the state tax levels are much lower. • If the employee were poor, the employee could be concerned about his creditors having a claim to the property that under the local fraudulent transfer rules the employee could not transfer the funds to the employee’s children. There is no legal requirement that the beneficiary of dependent life insurance be the participant/employee. However, life insurance companies/brokers often offer dependent life insurance in relatively small amounts as an inexpensive add-on to an employee group life insurance product that is being offered to an employer. This inexpensive goal is achieved if the beneficiary must be the employee. If the employee could make beneficiary choices the insurer would have to incur the cost of maintaining a beneficiary designation file for each of the policies. If beneficiary choices are permitted, there can be disputes about the validity of a designations, which again impose costs on the insurer. Thus, most insurers do not permit employees to choose a beneficiary, but instead make the participant the beneficiary. It is thus likely that Ms. Pierce is correct and the employee completed a designation for the employee’s life insurance, and confused that designation with a designation for the dependent policy. Nevertheless, there may be a dependent life insurance beneficiary designation. There is often a distinction between an ERISA plan that provides group life insurance and the group life insurance policy. That is why the plan may stay in existence despite changes in the insurer. If there is such a distinct plan document, it is important to check whether there are plan terms that are inconsistent with the underlying policy. If there is such an inconsistency, it would appear that the plan administrator would be responsible for following the plan terms, such as permitting beneficiary designations, even if the plan administrator did not obtain a policy conforming to the plan terms. Plans often name the insurer as the plan administrator, but that designation is only effective if the plan must be associated with such insurer, which we are assuming is not the case. Best wishes, Albert