Spouse designations upon divorce.

Is it normal to automatically revoke beneficiary designations of a spouse upon legal divorce of a participant and the spouse? If this is not automatic would the participant have to manually update this within their elections or would there be some sort of legal designation of assets? 

You might find some relevant discussion in this recent thread:  

https://benefitslink.com/boards/index.php?/topic/69629-contingent-beneficiary-question/

As David linked this had a recent discussion, but basically you need to see what the plan document says. Some have automatic rescinding upon divorce others do not. If the document does not automatically then the participant would need to change his/her beneficiary designation - and should do so ASAP. I would suggest the participant update beneficiaries after divorce in any event, regardless of what the plan says.

I live in a world where nobody has the right to do anything unless that right is bestowed upon them by law or by regulations that have the force and effect of law.  A court cannot require the parties to carry life insurance to protect the children because there is no statute that says that they can do so.  Nor can the court order the parties to pay for college, for the same reason, the law does not authorize it.  Certainly there are situations that a right is bestowed if not prohibited, including the 10th Amendment to the Constitution - "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."  But ERISA and the DoL control every breath taken by plan administrators, no?    

So let's assume that the Plan Documents actually do provide that a spouse's status as a beneficiary of a defined contribution plan is terminated upon her death and that we are not dealing with a divorce and a QDRO, and that the Participant neglects to submit a change of beneficiary form.  Where in ERISA does is the Plan authorized to strip the decedent and her estate of her status of beneficiary when Participant later dies without having changed the beneficiary?  I cannot find that in ERISA or in DoL regs.    

These two cases are right on point.  PaineWebber v.  East, 363 Md.  408, 768 A.2d 1029 (2001), and Kari E.  Kennedy, Executrix v.  Plan Administrator for Dupont Savings and Investment Plan, 129 S.Ct. 865, 555 U.S. 285 (2009), but maybe those plans didn't have such a clause in their plan documents, or were they prohibited from having them by ?????  

David      

I have seen it both ways in plan documents (including different plans of the same employer).  I have also seen plans that say that the spouse does not remain beneficiary unless the participant affirmatively designated the spouse as beneficiary during or prior to the marriage, which seems reasonable but I would be curious to know whether others have found that more complex to administer.

Either way, a participant should always manual update their beneficiary designations after divorce.

3 hours ago, fmsinc said:

So let's assume that the Plan Documents actually do provide that a spouse's status as a beneficiary of a defined contribution plan is terminated upon her death and that we are not dealing with a divorce and a QDRO, and that the Participant neglects to submit a change of beneficiary form.  Where in ERISA does is the Plan authorized to strip the decedent and her estate of her status of beneficiary when Participant later dies without having changed the beneficiary?  I cannot find that in ERISA or in DoL regs.    

These two cases are right on point.  PaineWebber v.  East, 363 Md.  408, 768 A.2d 1029 (2001), and Kari E.  Kennedy, Executrix v.  Plan Administrator for Dupont Savings and Investment Plan, 129 S.Ct. 865, 555 U.S. 285 (2009), but maybe those plans didn't have such a clause in their plan documents, or were they prohibited from having them by ????? 

Section 404(a)(1)(D) of ERISA says that a spouse ceases to be a beneficiary upon divorce and/or death if the plan's terms say so (so basically, yes, ERISA controls every breath taken by plan administrators, but they do get a substantial limitation of liability out of it, so it's not all bad).  If the plan documents provide that a spouse's status as a beneficiary is terminated upon divorce (or death), then that is what applies.  This was effectively the court's holding in Kennedy.  In the world of ERISA plans, the terms of the plan dictate who the beneficiary is (unless the participant is married), and a plan that is explicit when it comes to deciding who is the beneficiary is so much better than a plan that is silent.

19 hours ago, fmsinc said:

So let's assume that the Plan Documents actually do provide that a spouse's status as a beneficiary of a defined contribution plan is terminated upon her death and that we are not dealing with a divorce and a QDRO, and that the Participant neglects to submit a change of beneficiary form.  Where in ERISA does is the Plan authorized to strip the decedent and her estate of her status of beneficiary when Participant later dies without having changed the beneficiary?  I cannot find that in ERISA or in DoL regs.    

fmsinc, I'm not sure I understand. Are you talking about a situation where the non-participant spouse predeceases and the participant does not remarry before dying him- or herself? In that case, the participant is simply single at death. Some plans would provide a death benefit (probably small unless a governmental public safety plan) to children, but that's about it. Maybe I'm not understanding your point correctly.

1. Check the plan document and see what  it says

2. Check the laws in the relevant state.  FTW has told me they are taking this option out of their document as there are too many states with conflicting laws (California)

2 hours ago, Patricia Neal Jensen said:

Check the laws in the relevant state.  FTW has told me they are taking this option out of their document as there are too many states with conflicting laws (California)

Patricia Neal Jensen, for nongovernmental plans, state law would not be an issue, right?

Thankfully I've never encountered this, but state law can still set up a conflict even without automatic revocation in the plan document.

Although other states' laws may or may not be similar, the one I'm most familiar with: (1) automatically revokes an ex-spouse's retirement plan beneficiary designation upon divorce; (2) deems the ex-spouse to have pre-deceased the participant for purposes of determining the beneficiary; and (3) if federal law preempts those two things from happening, imposes a personal liability on the ex-spouse who receives the payment in favor of the person who would have been the beneficiary under state law. 

So even if the plan terms do not revoke, and the plan still pays, the ex-spouse following a divorce, someone else may have a claim against the ex-spouse. I guess that's not the plan sponsor's problem, but I would probably suggest the plan sponsor interplead any meaningful account balance to avoid the argument altogether, particularly if they know the ex-spouse will not willingly turn over any proceeds to the person entitled under state law. 

Plan sponsors, as such, as have nothing to do with plan administration except possibly appointing the Plan Administrator and trustee.  An interpleader by an ERISA retirement plan usually indicates that a plan fiduciary not doing its job.

4 hours ago, EBECatty said:

if federal law preempts those two things from happening,

Which it would.

4 hours ago, EBECatty said:

imposes a personal liability on the ex-spouse who receives the payment in favor of the person who would have been the beneficiary under state law. 

I guess there is precedent for this, sort of, in some circuits that impose a constructive trust where there was a divorce, no QDRO, but nevertheless an agreement between the parties that the state court finds enforceable against the party that receives the benefit from the plan. I suppose you can view state law, here, as the equivalent of the agreement among the parties. Very complicated because the parties' lawyers should be aware of this statute. But I'd be interested to know if this state statute has survived an ERISA preemption challenge, because unlike the decisions enforcing a state law agreement incident to a divorce, this seems to create state property rights in a plan benefit, which seems inconsistent with ERISA.

Certainly, in a DB plan it's not going to create a benefit that does not exist under the plan, so seems relevant only to 401(k).

I was involved in a case a number of years ago that involved this fact pattern, where the nonparticipant spouse predeceased the participant (who had retired many years previously, but had left his benefit in his employer's 401(k) rather than rolling to an IRA) by just 15 days and had attempted to will her alleged community interest in the participant's benefit to, if I remember correctly, her children by a different marriage. The outcome, in Texas, was completely different from the outcome that the law you describe is trying to achieve.

Very interesting. Thanks, EBECatty. 

Luke....  I would have to do more research on Preemption to be sure.  Can ERISA preempt an action that is not specifically addressed (in ERISA)?

I am usually involved in drafting documents and I would be reluctant to put that language in a plan document in California.  Why "buy" trouble?

Patricia

Patricia, my guess is that it is a gray area. There are cases that are good law in some circuits, as I indicated earlier, that there can be a post-distribution equitable action in state court to enforce against the recipient of the plan benefit a non-QDRO agreement that the parties had entered into in connection with their divorce. Arguably the CA law that you describe, and with which I am unfamiliar, just codifies the result of those cases for CA. Supporting the argument for no ERISA preemption would presumably be the fact that the CA law does not attempt to change the identity of the person to whom the plan distributes the benefit. However, it seems to me there also might be an argument that the CA law goes further than the cases and attempts to change who is entitled to the benefit, infringing on ERISA's territory. In a very technical sense, the CA law seems like a property right, whereas the cases were an equitable remedy to enforce an agreement. Could be an interesting case if has not already been litigated to a conclusion one way or the other. Again, I'm just winging this because I am not familiar with the CA law you mention, Patricia. Was it enacted recently and have I understood your description of it correctly?