Designation of Beneficiary of Defined Benefit Plan

[fmsinc]

Read this case from the U.S. District Court in Georgia dealing with the naming of a beneficiary of a pension plan. -

https://scholar.google.com/scholar_case?case=7964216609854086279&hl=en&lr=lang_en&as_sdt=20006&as_vis=1&oi=scholaralrt&hist=bY5nDLcAAAAJ:17102308171145443235:AAGBfm2dXJvPo0nUQKlDLqIPUBXxyXMitw&html=&pos=0&folt=kw

Who is responsible for the chaos described?  The Participant who had no idea what he was doing?  The Plan Administrator who obviously was not paying attention to the actions of the Participant and his violation of Plan requirements?  The Sponsor who adopted Plan rules that clearly were not understood by the Plan Participant?   

Lots of lessons here.  I suspect the case will be appealed.    

[Peter Gulia]

Thank you for sharing Chief Judge Hall’s opinion.

On your who’s-responsible question, there were plenty of people with plenty of opportunities to avoid unwelcome results.

Among those, the multiemployer plan’s sponsor—the joint board of trustees, which decides the plan’s provisions arguably as a nonfiduciary creator, could have much more carefully stated the plan’s provisions.

It is unclear (some might say doubtful) whether the plan provisions Judge Hall found were the provisions the plan’s sponsor intended.

Further, even if one assumes only Judge Hall’s fact findings (which are incomplete), other possible interpretations of the plan (and of the plan’s application to each of the disputed beneficiary designations) are at least permissible and might be persuasive.

The opinion suggests little or nothing about whether the plan’s administrator breached its responsibility because the opinion describes no analysis on such an issue. Further, it seems likely none of the interpleaded claimants presented a fiduciary-breach counterclaim or crossclaim.

If there is an appeal, the appeals judges should defer to the trial judge’s findings of fact (unless clearly wrong), and might defer to the trial judge’s interpretations of the governing plan document, the summary plan description, and the plan’s form for making a beneficiary designation.

If so, there might be little or nothing left in public law issues on which appeals judges would do a fresh analysis.

[G8Rs]

Calling the matter "a cautionary tale for ERISA administrators," the 9th Circuit commented that “plan administrators disserve both plan participants and beneficiaries when they accept a beneficiary designation that does not unambiguously identify the beneficiaries."
Metro. Life Ins. Co. v. Parker, 2006 U.S. App. LEXIS 2561 (9th Cir.2006)

That warning can be expanded to include improperly completed designations and using forms that aren't consistent with the plan terms. This is one area of plan operations where there appears to be a gap - particularly with small employers where the plan administrator is the employer. Many service providers don't want to accept and review designations. Instead they leave it up to the plan administrator/sponsor to hold, and review, designations. It works fine in most cases. But no so well in others. I suppose the union plans, such as the one involved in this case, aren't in any better shape.  

[BG5150]

I never saw that the spouse had to consent to a contingent beneficiary before.  is that common?

Plus, it doesn't make sense.  If the spouse is the primary beneficiary, then the only time the benefit goes to the contingent bene is if the spouse is deceased.  Why would you need spousal consent for in a case where the spouse has no claim to the benefit (he/she is dead!)?

[Luke Bailey]

I had a somewhat similar case a couple of years ago, which settled. A couple of things that I found interesting were:

1. It appears to be settled law, at least in most circuits, that in this sort of situation (which will often involve a deficiency in the administration of the plan), the plan administrator can throw up its hands and implead. I think that is the right answer, but I would also have thought that the federal courts might say that the plan administrator had to reach a conclusion, and then the court would just review it under its usual ERISA standard of review. That has been argued in several cases, but appears to have been rejected by most courts. It would be a simpler approach and lead to lower legal costs, but would, I think, often produce an unfair outcome, so would be the wrong approach where a large amount of money is involved, as it was in the case I worked on.
2. Once it goes from the plan administrator to the court, the standard to be applied by the judge seems to be open to interpretation. The judge, as it did here, could attempt to figure out how the plan's rules apply, but then see point 1 above. An alternative approach is for the court to figure out what the participant intended and apply that unless it clearly breaches some plan rule. In the case I worked on, which, again, settled, a wooden application of the plan's rules would have invalidated the participant's last beneficiary designation, but would also have clearly been counter to her intent.

Sometimes reality is not black and white, which is why the law permits parties to enter into settlements.

[Nate S]

9 hours ago, Luke Bailey said:

Sometimes reality is not black and white, which is why the law permits parties to enter into settlements.

Can a Sponsor/Plan Administrator agree to a settlement that violates the terms of the Plan?  Not specific, just curious.

[Luke Bailey]

13 hours ago, Nate S said:

Can a Sponsor/Plan Administrator agree to a settlement that violates the terms of the Plan?  Not specific, just curious.

If the money is going to come out of the plan, I think there would have to be a plausible argument that the claimant would prevail. Otherwise, the plan sponsor could amend the plan, but there would be complications of doing that, especially if the deceased participant was an HCE.