Participant awarded non-spousal pension by lying about being married; he's now dead and wife wants her spousal benefits

[MEP]

Multiemployer pension plan.  Participant files an application for benefits.  States he is not married and chooses a non-spousal, 60 sum certain form of payment.  Lists son as his beneficiary.  Participant received payments for about a year and dies.  Just to complicate matters, participant never cashed his payments.   Son began receiving the payments that participant was entitled to before his death, along with the remaining payments for over a year now (and continues to do so).  The Fund has now learned that participant was married at his effective date and at his death.  Spouse now wants her pension benefit.  Not that we are obligated to follow it, but the probate court has awarded her spousal benefits.

No idea if it is applicable, but our plan document does include a statement that if a participant, beneficiary, ect makes a false statement/furnishes fraudulent information relevant to a claim for benefits, then benefits not vested shall be denied, suspended, or discontinued.  But the fact that we are dealing with vested benefits, I'm not sure we could have the participant's actions effect the wife's entitlement to benefits.

Any suggestions on how to handle this situation?  Just spitballing here, but it seems like we need to stop the son's payment ASAP.  With SECURE Act 2.0, its likely gonna prove difficult to seek an overpayment from son, unless we have on record some fraudulent statement made by him, which I doubt.  Once the wife applies, we should adjust the form of payment to a spousal pension, and give her the payments participant was entitled to prior to his death, and spousal payments until her death.  I don't like the thought of having to pay out some benefit periods twice, but I'm not sure there is any way around it.  We probably should also set the record straight with the probate court about federal preemption.  

Any and all guidance is appreciated.  

[Peter Gulia]

One imagines the administrator of a multiemployer pension plan is the plan’s joint board of trustees. If you’re a nondiscretionary service provider, perhaps you want whatever instruction that fiduciary gives you, which might include a stop instruction.

Consider that the trustees might instruct that all communications are from or to their counsel, to help preserve (as much as is possible, even recognizing the fiduciary exception) evidence-law privileges for lawyer-client communications made to help the lawyers form their advice or render their advice.

If the plan’s administrator acted innocently and prudently in relying on the participant’s false statement, ERISA § 205(c)(6) might afford some relief.

“If a plan fiduciary acts in accordance with part 4 of this subtitle [ERISA’s fiduciary-responsibility provisions] in . . . (B) making a determination under paragraph (2) [for example, about whether a consent was excused “because there is no spouse”], then such . . . determination shall be treated as valid for purposes of discharging the plan from liability to the extent of payments made pursuant to such Act [sic].” ERISA § 205(c)(6), 29 U.S.C. § 1055(c)(6) (emphasis added) http://uscode.house.gov/view.xhtml?req=(title:29%20section:1055%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1055)&f=treesort&edition=prelim&num=0&jumpTo=true

At least one court construed the “to the extent” phrase to mean that a plan must pay the surviving spouse an amount or amounts based on what remains of the benefit that would have been provided in the absence of the participant’s false election after subtracting the amounts the plan paid. Hearn v. Western Conference of Teamsters Pension Trust Fund, 68 F.3d 301 (9th Cir. 1995).

[david rigby]

Is it possible the 12-month rule is relevant?

[Belgarath]

13 hours ago, Peter Gulia said:

At least one court construed the “to the extent” phrase to mean that a plan must pay the surviving spouse an amount or amounts based on what remains of the benefit that would have been provided in the absence of the participant’s false election after subtracting the amounts the plan paid. Hearn v. Western Conference of Teamsters Pension Trust Fund, 68 F.3d 301 (9th Cir. 1995).

To my non-legal mind, this seems like a reasonable and equitable decision.

[Peter Gulia]

And if applying ERISA results in depriving the surviving spouse of some payments she ought to have received under the pension plan’s provisions, the spouse might have a claim against the decedent’s estate for the harm his false statement caused.

[MEP]

All the comments are much appreciated. 

Just to provide some feedback, the 12 month rule is not relevant, as the marriage was about three years before he applied for benefits.  The Participant was kind enough to mention and provide documentation for his two prior marriages in the 80s/90s, but not his recent marriage.  

I have reviewed the Hearn case and other cited cases.  I like the thought of handling the case along those lines, though I am not sure if SECURE Act 2.0 affects the Fund's ability to proceed similarly as it states that a fund may not seek recovery of past overpayments made to a participant from a participant’s beneficiary, including their spouse, surviving spouse, former spouse, or other beneficiary.  I'm also going to need to give some thought to the language "innocently and prudently", as the fund received notice about this issue about 6 months ago, but just kept on paying the beneficiary.  I think the fund is in fine shape prior to receipt of that notice (especially after we thereafter received the marriage certificate) that participant had a surviving spouse, but is problematic thereafter.  

As to the mention of the participant's estate, I can confirm that the surviving spouse does have counsel and is litigating the issue there.  I don't know the full extent because the documentation shared from her is limited and the jurisdiction is such that it is not publicly available, but apparently the probate court awarded her survivorship rights, without further explanation.  I do get concerned when I see a state court litigate issues related to the fund without an understanding of even providing the fund notice or understanding ERISA preemption.  

 

[fmsinc]

In my QDRO practice I regularly am confronted with this situation in divorce cases.  The Participant either fills out the paperwork indicating that he is "not married", or he finds someone who will notarize the Alternate Payee's waiver of QPSA and QJSA benefits.  The goals of the Participant are twofold.  First, to avoid paying a share of his retirement annuity to the Alternate Payee per a QDRO for as long as he can get away with it.  Second to avoid having the Alternate Payee receive a QPSA or a QJSA.    

Your case does not seem to involve a divorce, so the wife is not entitled to a share of the retirement benefits, and even if she was they would have ended at his death.  But by law she is entitled to a share of his QPSA or QJSA as the case may be.  See,   IRC 401(a)(11); IRC 417; and 26 CFR 1.401(a)-20, Q&A 17

You are focused on recovering, vel non, (over) payments to the Participant and to his children, but the spouse cares not at all about your problems.  She wants her survivor annuity benefits and will make a claim in her role as a potential beneficiary against you in you in your capacity as a fiduciary, 29 U.S. Code § 1002(8) and 29 U.S. Code § 1132(a)(1).

 In order to qualify as a “beneficiary”, an individual must have "a reasonable or colorable claim to benefits."  Crawford v. Roane, 53 F.3d 750, 754 (6th Cir. 1995).  See also Cobb v. Central States, 461 F.3d 632, 635-36 (2006) holding that to have standing as a beneficiary under ERISA, a plaintiff must show both that he or she was designated as such by the participant or terms of the plan, and that he or she has a colorable entitlement to benefits under the plan.  See also Caples v. U.S. Foodservice, Inc., 444 F. App'x 49, 52 (5th Cir. 2011). 

In other words, you owe the wife a fiduciary responsibility to protect her interests.  You cannot punish her for the sins of her husband.  What that might look like I don't know. Do the Plan documents set forth a default percentage (50%) that the Participant should have elected at the time of his retirement?  Or is 50% already the default per 29 USC Sec 1055(d)(1)(A).  I would suggest that you now compound your problems by taking advantage of the wife's lack of legal representation. 

A settlement sounds like a good option.  

DSG

[MEP]

Good points DSG.  You are right that I am trying to look at the entire overall picture, while the wife is only worrying about her survivor annuity.  In my mind (though I am low enough on the totem pole that I'm not making the final call), the wife is entitled to the survivorship benefit, its just how it is handled.  Following a similar process as laid out in Hearn seems like a solid way to go, though I do wish this had been elevated prior to paying off the participant's beneficiary for an additional 6 months.  One might look at Hearn and say that on some level, you are punishing the innocent spouse for the sins of the participant, but ERISA § 205(c)(6) appears to provide the fund the ability to do so.  

Unfortunately, she is represented by counsel in the probate court, but obviously not an attorney well versed in ERISA (which is not unusual at all).  Notwithstanding ERISA, I would have thought her attorney, when filing motions regarding the fund's survivorship benefit, would have made the fund a party to the case, or at least provided notice regarding such motions/hearings.

I do imagine some settlement discussions will take place soon, though its important to have an understanding of where the law/guidance ect stand on such a situation.  The replies so far have been extremely helpful on that point.