Divorce revokes beneficiary designation - in which states?

[Appleby]

In some states, divorce automatically revokes a beneficiary designation, where the former spouse was the designated beneficiary. I think CA and Illinois are two such states.

…anyone know the rules for Pennsylvania?

[mbozek]

HI, WA. NY does not.

[Kirk Maldonado]

Isn't there a serious question as to whether those laws are pre-empted by ERISA?

[mbozek]

Definitely where the plan is subject to ERISA. But IRAs, Simples and SEPS are subject to state law as well as 457 plans of govt employees.

[Appleby]

VA does .

[SoCalActuary]

My understanding is that the beneficiary designation in a qualified plan remains in place unless specifically changed during the divorce process by court action. Once the divorce decree is final, the participant is either bound by a QDRO or free to change beneficiaries without spousal consent. But the burden is then on the participant to make such a change, or the old form stays valid.

I don't know how this applies to non-plan rights, such as insurance, IRA, 457, 403b, etc.

[Harwood]

Corbel document:

"... if a Participant has designated the spouse as a Beneficiary, then a divorce decree or a legal separation that relates to such spouse shall revoke the Participant's designation of the spouse as a Beneficiary unless the decree or a qualified domestic relations order (within the meaning of Code Section 414(p)) provides otherwise or a subsequent Beneficiary designation is made."

[Guest 401der]

Corbel adds this language to the plan document to get around the ERISA preemption that would otherwise apply. If this or similar language is not in the plan document, then a divorce decree wouldn't automatically nullify the beneficiary designation. Participants who divorce should sign new bene designations.

[KJohnson]

I don't know if I would want that provision in my document. What if administrator does not know of the divorce, pays the ex-spouse and gets sued by the contingent/successor beneficiary. I would sure want something that says that the divorce decreee has to be provided to the administrator to be effective as a termination of the beneficiary designation.

[mbozek]

It is kind of nutty for a plan admin to be liable for a change of bene upon divorce without being required to receive notice of the divorce. Its called vicarious liability. Why does the plan sponsor care about preemption of state laws since the plan provisons which designate the spouse as bene would apply until changed by the employee without any liability to the PA for the employee's failure to change the bene?

[Kirk Maldonado]

Mbozek:

The reason why is because the persons that would otherwise receive the benefit (if it didn't go to the ex-spouse) will sue, claiming that they are entitled to the benefit. Their argument is based on the fact that the divorce decree specified that each spouse is giving up any interest in the property of the other spouse. Thus, the beneficiaries are claim that, through the divorce decree the ex-spouse gave up any right to retirement plan benefits, even though the beneficiary designation wasn't revoked.

Certainly, the plan has equally strong, if not stronger, arguments in favor of it being able to pay out the benefits in accordance with the beneficiary designation.

I've had this issue come up twice in my career. My research (at that time) indicated that the answer wasn't crystal clear, and in both cases there was enough money at stake to make it worth while for the putative beneficiaries (typically the participant's children) to sue.

The plan could file an interpleader action, but that can be very expensive.

That's why I favor having the plan document say that the QDRO automatically revokes the beneficiary designation. In fact, if I get to review the QDRO (on behalf of the plan) I make them put it into the QDRO. It avoids this problem come up frequently, and I think that often participants fail to change their beneficiary designations after divorce.

[KJohnson]

There is a difference in saying that a QDRO revokes a beneficiary designation as opposed to a divorce decree revoking a beneficiary designation. A plan administrator probably only sees a fraction of the divorce decrees whle, by definition, they must see a QDRO.

[mbozek]

Kirk: my comment about Corbel related to making the plan liable for a change of beneficary upon divorce without a QDRO. In most divorces the plan assets are not transferred to the spouse under a QDRO but remain with the ee to avoid the cost of preparing a QDRO and the PA never receives the divorce decree. Under the Corbel language the PA would be liable for paying benefits to an ex-spouse under the plans bene designation even if the PA has no knowledge of the revocation of bene desigation upon divorce. Under Egelhoff the plan admin can pay benefits in accordance with the terms of the plan. In McMillian v. Parrott, 913 F2d 310, the 6th circuit held that that in the absence of a QDRO the PA can pay benefits in accordance with the plan docs.

[Kirk Maldonado]

mbozek:

Thanks for clarifying that point.

[g8r]

Mbozek:

I understand your comments. However, it seems as though there is always some hidden liability when it comes to paying death benefits. That could happen when there is a divorce (without a QDRRO) and a remarriage w/no info being provided to the plan. If you follow the terms of the bene designation, you'd still have liability for paying the wrong bene (b/c the new spouse is entitled to all or a portion of the death benefit). So, I've always wondered whether there is some sort of due diligence that is required whenever a death benefit is paid, i.e., verifying who the current spouse is. I just can't see any other way to be absolutely sure that the proper beneficiary is being paid.

[mbozek]

To avoid liability,The PA should receive the marriage certificate from the surviving spouse and confirm the spousal relationship from other records such as health ins coverage before paying benefits.

[KJohnson]

Welfare benefits case (life insurance), but an interesting analysis of Egelhoff by the 5th Circuit that came out on 12/22. Although state law might be preempted it goes on to find that a divorce decree can "trump" the beneficiary designation under federal common law.

http://www.ca5.uscourts.gov/opinions/pub/0...212-CV0.wpd.pdf

[Guest Anf1998]

Does anyone know the rules for revocation of beneficiary for divorce in Colorado where plan is a government retirement plan subject to the Colorado PERA statutes?