Beneficiary Designation Issues

[Guest AD2]

A terminated (2004) participant, who had not yet been paid his plan (profit sharing) benefit, died in November of 2008. When he died, he was remarried. I believe his current wife is the beneficiary. In addition, his beneficiary designation form (signed in 2000) names his first wife as the beneficiary but the form says that “if I re-marry the beneficiary designation below will no longer be valid”and provides that his spouse at the time of death will receive the death benefit (unless waived). What steps should be taken to make sure his current wife is the beneficiary and how can litigation be avoided from the first wife who thinks she is the beneficiary? I am aware that there are several approaches that can be taken (e.g., having the first wife complete a claim of benefits form and then show her why she is not the beneficiary, hiring an attorney to handle the situation, getting the estate lawyer involved, etc.). What would be the best way to handle a situation that ensures payment is made to the correct beneficiary and helps protect the TPA and the employer from possible litigation?

[J Simmons]

What steps should be taken to make sure his current wife is the beneficiary and how can litigation be avoided from the first wife who thinks she is the beneficiary?

If that provision in the designation does not offend terms of the plan, then it should be honored. The naming of W1 in essence was contingent on a condition subsequent--EE not having remarried before he died. Before paying the death benefits, you would want proof of a valid marriage certificate from W2, and then ask W1 to sign a statement that (a) EE had remarried before his death, and (b) W1 is not entitled to any death benefits.

What would be the best way to handle a situation that ensures payment is made to the correct beneficiary and helps protect the TPA and the employer from possible litigation?

Actually, the best way to assure that the plan does not have to pay the same benefits twice is a form of litigation called interpleader. That's where the plan informs the court that it has benefits it is holding and that perhaps both W1 and W2 have claims to it, and that the court should sort it out and decide which W is to receive the benefits.

[Guest AD2]

Thanks for your response, John. In that regard, it seems to raise the following questions:

"Ask W1 to sign a statement that (a) EE had remarried before his death, and (b) W1 is not entitled to any death benefits."

The benefit is fairly small ($40,000), but why would anyone (W1) sign a piece of paper that they are not entitled to something when t hey are getting nothing in return?

"Actually, the best way to assure that the plan does not have to pay the same benefits twice is a form of litigation called interpleader. That's where the plan informs the court that it has benefits it is holding and that perhaps both W1 and W2 have claims to it, and that the court should sort it out and decide which W is to receive the benefits."

Wouldn't court action of any kind be timely and costly and possibly complicate matters further. I am, not a lawyer; do you think it is worthwhile to get the courts involved without trying to settle this by other means?

[J Simmons]

"Ask W1 to sign a statement that (a) EE had remarried before his death, and (b) W1 is not entitled to any death benefits."

The benefit is fairly small ($40,000), but why would anyone (W1) sign a piece of paper that they are not entitled to something when t hey are getting nothing in return?

Some people are rather upfront, accommodating and willing to sign accurate statements once it is shown to them such is in fact accurate. If you want to avoid the possibility of litigation, it's worth asking, isn't it?

"Actually, the best way to assure that the plan does not have to pay the same benefits twice is a form of litigation called interpleader. That's where the plan informs the court that it has benefits it is holding and that perhaps both W1 and W2 have claims to it, and that the court should sort it out and decide which W is to receive the benefits."

Wouldn't court action of any kind be timely and costly and possibly complicate matters further. I am, not a lawyer; do you think it is worthwhile to get the courts involved without trying to settle this by other means?

If I asked W1 to sign and she refused, that indicates to me that if I go ahead without a court order and pay the benefits to W2, I might later face a claim from W1--in court or otherwise. I wouldn't want to have to pay the benefits 2x. It would be worth the time and cost (depending on the lawyer/law firm you hire--rates vary greatly). But once the interpleader complaint is drawn up, filed and served on W1 and W2, you sit back and watch W1 and W2 duke it out in court. You just wait for the court to issue an order telling you whether to pay the benefits to W1 or W2.

[Bird]

But is there really any doubt that W2 is the beneficiary? You have two factors saying W1 is not; first, the beneficiary designation that voids itself if he remarries, and second, the plan almost undoubtedly says W2 is the beneficiary, unless she has waived (there's a slim chance that if they were married less than a year, the plan says she's not his spouse for plan purposes, or if the plan has J&S options, that less than 100% is subject to the J&S rules, but neither seems likely and it's just a matter of reading the document).

I see it as black and white.

[mbozek]

A terminated (2004) participant, who had not yet been paid his plan (profit sharing) benefit, died in November of 2008. When he died, he was remarried. I believe his current wife is the beneficiary. In addition, his beneficiary designation form (signed in 2000) names his first wife as the beneficiary but the form says that “if I re-marry the beneficiary designation below will no longer be valid”and provides that his spouse at the time of death will receive the death benefit (unless waived). What steps should be taken to make sure his current wife is the beneficiary and how can litigation be avoided from the first wife who thinks she is the beneficiary? I am aware that there are several approaches that can be taken (e.g., having the first wife complete a claim of benefits form and then show her why she is not the beneficiary, hiring an attorney to handle the situation, getting the estate lawyer involved, etc.). What would be the best way to handle a situation that ensures payment is made to the correct beneficiary and helps protect the TPA and the employer from possible litigation?

I dont see any issue here. Under US Supreme court precedents beginning with Boggs v. Boggs, the surviving spouse of a participant is automatically the beneficary of the participant's death benefits with priority over all other beneficaries unless that spouse waives the benefits in accordance with the provisions of ERISA, e.g., in writing. The only other exception is if the ex spouse has a valid QDRO before the employee remarries. All you need is the birth certificate and marriage license of the surviving spouse to the deceased participant.

I would pay the benefits to the surviving spouse and not bother with the first wife for the obvious reason of why get her involved which will delay payment to the current spouse and the absence of any basis for her to receive benefits under ERISA. If the ex files a request for benefits treat it as a claim for benefits and then deny in accordance with the plan's procedures. Ex cannot bring a lawsuit before filing a claim with the plan administrator.

The plan should not file a claim in interpleader unless there are facts demonstrating that the ex has a viable claim under a QDRO or because of a spousal waiver because a court would dismiss the action and then assess legal fees and court costs against the plan for bringing a frivilious lawsuit. The idea that the plan can merely file an interpleader and then sit back is not correct in some districts where judges award fines for fines for filing frivilious suits under rule 12b.

A few years ago a large pension fund brought an interpleader on the grounds that the surviving spouse had abandoned the deceased employee and the benefits could be paid to the family members. The judge awarded the benefits to the spouse on the grounds that there was no facts to support abandonment and then ordered the pension fund to pay the legal fees and costs of the surviving spouse.