"Successor" beneficiary in a Defined Benefit plan where Designated/Primary Beneficiary determined to be invalid

Hello All,

Another vexing question to which we have  conflicting answers. In the event that a "Primary beneficiary" of a ERISA -covered Defined Benefit Plan is determined to be invalid, what determines who the "Sucessor/New Primary Beneficiary" will be? In this partiicular instance, in addition to a "Primary beneficiary" , the completed form indicated a "Contingent Beneficiary".  It should be noted that the "Plan Documents" (i.e. Summary Plan Description SPD) states, specifically, that the "Contigent Beneficiary" shall become the new "Primary Beneficiary" in the event the  "Primary Beneficiary" is deceased; the document gives no other instance wherein the "Contigent Beneficiary" shall become the new "Primary Beneficiary" . The Plan documents ALSO states, specifically, that in the event that there is no VALID (emphasis mine) "Primary Beneficiary" the benefits shall be paid to the deceased plan partipant's Estate.  The question is: Do the "Plan Documents" determine who is the new "Primary Beneficiary" or some other ruling authority ? Based upon the plan document wording specifically addressing the event of an "invalid Primary Beneficiary", would not the correct new "Primary Beneficiary" be the deceased plan participants Estate per the wording in the SPD? Thanks in advance for everyone's help!

Let’s assume that whatever survivor annuity or other death benefit the plan provides a surviving spouse to meet ERISA § 205 is inapplicable or exhausted.

And let’s assume that, in the circumstances, the plan provides a benefit for which it might matter to identify a beneficiary.

An ERISA-governed plan’s administrator must administer the plan “in accordance with the documents and instruments governing the plan[.]” ERISA § 404(a)(1)(D).

That means the governing documents, not the summary plan description (unless the plan sponsor specified the SPD is a governing document). See CIGNA Corp. v. Amara, 563 U.S. 421, 50 Empl. Benefits Cas. (BL) 2569 (May 16, 2011).

But let’s imagine the plan’s governing documents too might be ambiguous. (The ways plan sponsors make plan documents, especially when using IRS-preapproved documents, often result in provisions that do not make sense using only textual interpretation.)

Plan documents typically grant the plan’s administrator broad discretion to interpret a governing document and the plan’s provisions.

Many BenefitsLink mavens use the shorthand RTFD for Read The F . . . abulous Document (as RatherBeGolfing recently explained it). I propose a new shorthand: ITFD for Interpret The Fouled-up Document.

If the plan’s documents grant discretion, courts defer to the administrator’s reasoned interpretation. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 10 Empl. Benefits Cas. (BL) 1873 (Feb. 21, 1989).

Not seeing the whole set of documents you mention, I won’t speculate about the interpretation.

This is not advice to anyone.

Thank you VERY MUCH Peter for your extremely informative and insightful answer! I will review the actual plan documents as such as move forward accordingly.  

Not to "Beat a Dead Horse", but the courts have ruled, have they not, that a Beneficiary Designatiuon Form is a "Plan Document" Correct? or a  "Plan Instrument" ? 

Some court decisions describe a beneficiary designation as a part of “the documents and instruments governing the plan[.]” Others have described it as a record maintained under the plan. I don’t remember a case in which either description is a precedent or even a holding, rather than dicta.

If “the” plan document is, after considering all textual interpretation methods, ambiguous, an interpreter might consider a summary plan description—a plan administrator’s attempt to explain the plan’s provisions—as possibly some secondary information about the plan administrator’s perception of the plan sponsor’s intent. (More so if the administrator is the same person as, or a committee or officer of, the sponsor.) Likewise, one might consider a beneficiary-designation form as information that might favor or disfavor one or more of the possible interpretations.

If a plan’s sponsor/administrator uses documents, SPDs, and forms from a service provider without carefully reading and editing those writings, all interpretations might be weakened.

But a plan’s administrator must do what’s loyal, obedient, and prudent in the circumstances. Sometimes, that’s a least-wrong interpretation.

Two related points:

For interpretations, a fiduciary’s duty of impartiality might call for maintaining over time logically consistent interpretations for similar situations.

A plan amendment to change the default for an absence of a beneficiary designation might be an amendment one could apply with little worry about a prohibited cutback of a benefit.

Why not clean up the whole set of writings so the provisions make sense, are internally logical, and are accurately described?

Or if the plan sponsor isn’t ready (perhaps for expense or another reason) to do that, pursue carefully a least-wrong interpretation.

This is not advice to anyone.

pwitt, Peter Gulia's analysis of the issues is excellent. From a practical standpoint, I would want to know (a) whether the person who would take the money through the estate is different from the person who would be the contingent beneficiary and (2) whether the amount of money at stake is significant. If the takers are different and there's enough at stake for the one who would not get the money under the plan administrator's interpretation to hire a lawyer and sue, the plan might want to hire it's own lawyer to interplead the benefit into court.

On 6/3/2024 at 2:09 PM, pwitt said:

Hello All,

Another vexing question to which we have  conflicting answers. In the event that a "Primary beneficiary" of a ERISA -covered Defined Benefit Plan is determined to be invalid, what determines who the "Sucessor/New Primary Beneficiary" will be? In this partiicular instance, in addition to a "Primary beneficiary" , the completed form indicated a "Contingent Beneficiary".  It should be noted that the "Plan Documents" (i.e. Summary Plan Description SPD) states, specifically, that the "Contigent Beneficiary" shall become the new "Primary Beneficiary" in the event the  "Primary Beneficiary" is deceased; the document gives no other instance wherein the "Contigent Beneficiary" shall become the new "Primary Beneficiary" . The Plan documents ALSO states, specifically, that in the event that there is no VALID (emphasis mine) "Primary Beneficiary" the benefits shall be paid to the deceased plan partipant's Estate.  The question is: Do the "Plan Documents" determine who is the new "Primary Beneficiary" or some other ruling authority ? Based upon the plan document wording specifically addressing the event of an "invalid Primary Beneficiary", would not the correct new "Primary Beneficiary" be the deceased plan participants Estate per the wording in the SPD? Thanks in advance for everyone's help!

1. What causes the designation invalid? The answer might allow for a more definitive response.
2. Technically, this would not be a 'successor ' beneficiary, right? A successor beneficiary is one that inherits the account, when the primary beneficiary dies.
3. If the primary beneficiary is invalidated, wouldn't the contingent beneficiary get promoted to primary? - unless the plan document says otherwise?
    

@ Appleby   First noting Peter Gulia's excellent response. At this time, I do not have the actual "Plan Documents"; just several year's SPDs. That being said, in the SPD's two statements are found 1) That any designated "contingent beneficary(ies) will ONLY(emphasis mine) inherit if none of the (designated) primary beneficiaries are alive at the time of death of the original plan participant. 2) Further on in the SPD it states "in the event there  is NO VALID(again emphasis mine) primary beneficiary, any benefit will be paid to the Estate of the deceased participant".  So imagine an instance where a plan participant has designated an individual who should not be the primary beneficiary for any one a several reasons (not going into particulars) . On the same beneficiary designation form, the then living plan participant also designates one or more "contingent beneficiaries". Now, the original  plan participant dies and the Plan's administrator pays out the, for lack of a better term, "death benefit" to the designated primary beneficiary, who, again, should not be "eligible".  the question then becomes who has "standing" to sue to recover: The participant's Estate  or the "contingent beneficiary"?

As Peter Gulia pointed out the SPD IS NOT a  "PLAN DOCUMENT" and so, in  my interpretation of Peter's answer, the actual plan documents are the best place to look for the answer. If anyone knows where there is a court that set precedence saying, in effect, irrespective of any "Plan document", the  contingent beneficiary "gets promoted" , as you put it, to become the primary, please let me know.

Hello Luke,

Answers 1) Yes 2) Very Yes  Thank you for your input regarding interpleader!