One of the thorniest issues in life insurance law is how courts decide who is a beneficiary for purposes of being paid life insurance benefits. For insurance policies that were sold to individuals outside of their work, state law applies to this question. States have varied law on this subject, but if it makes it to a court, many states will take testimony from witnesses and examine the deceased’s intent when declaring their beneficiary if it is not clear from forms or letters. However, many people have group insurance through their employers, and these policies are covered by the federal employee benefits law called ERISA. Beneficiary determinations under ERISA are quite different than those in state law.
In 2009, the U.S. Supreme Court considered a pension case which addressed the issue of how ERISA plan administrators determine beneficiaries after someone’s death. The Court’s ruling applies to pension, but also ERISA life and accidental death insurance claims. In Kennedy v. Plan Adm. For DuPont Sav. and Invest. Plan, 555 US. 285, 129 S.Ct. 865 (2009), the Court was considering a pension beneficiary designation after the death of a divorced person. The question centered around the surviving ex-spouse’s waiver of rights to the pension during the earlier divorce. The deceased had not changed beneficiary designation forms that passed the pension interest of the ex-spouse after their divorce. However, the deceased’s estate claimed that the money should pass to the estate, not to the ex-spouse, due to the waiver in the divorce.
The Supreme Court saw it differently, holding that the ERISA plan administrator should not be required to assess competing claims and evaluate things like waivers that happened in divorces. Instead, the Court held that the pension plan administrator should only have to look at who was properly designated as the beneficiary under the terms of its plan. This is particularly important for multi-state employers that can simplify their operation without having to look to the laws of many different states to sort out who should be paid benefits.
The Court desired to adopt a rule that would allow a “a plan administrator…to look at the plan documents and records conforming to them to get clear distribution instructions, without going into court.” In reaching the rule that the beneficiary was whoever was designated under the plan’s procedures, the Court reinforced the rule that ERISA plan procedures must be followed. The Court was also repeating a common them found in employee benefits law under ERISA – uniformity and saving costs for employer plans. In the case of life insurance beneficiary designations, it makes a lot of sense to have a rule that requires employees to follow plan rules. It is much easier for a pension or life insurance plan administrator to assess who is entitled to funds if they only have to see who was designated under the procedures.
Here is a simple process for anyone trying to designate a beneficary under an ERISA group life insurance plan:
- Ask your employer in writing for a copy of each document which explains how to designate a beneficiary under the plan. This may be the plan document, the summary plan description, or other documents. Do this for every plan for which you want to designate a beneficiary. There may be different rules under each plan.
- Ask your employer in writing for a copy of any forms which it requires for you to designate a beneficiary. Again, ask for the form under each plan, since different forms may be used.
- Follow the instructions in the plan documents and forms to the letter. Do exactly what they tell you to do.
- Submit your beneficiary designation in the format required by the plan documents, to the person required, in the manner required.
- If you are not sure that you followed the procedures correctly, ask the administrator in writing to confirm a) that you submitted the beneficiary designation properly, and b) who they are recognizing as your beneficiary.