State Law Does Not Change Who the Beneficiary is Under an ERISA Life Insurance or Pension Plan
Group life insurance and pension plans offered through an employer have different rules about who gets the benefits after someone dies. Many states have laws that attempt to control who may be the beneficiary of a life insurance policy or retirement benefit. States often try to regulate this probate or divorce law, but the federal law that controls employee benefits, the Employee Retirement Income Security Act -ERISA, overrides all of the states’ laws. There are 2 key concepts in ERISA that you have to keep in mind when trying to determine who the proper beneficiary is:
- It does not matter what state law might say about who gets the benefits.
- You have to look at the procedures spelled out in an employer’s group plan document, and make sure those were followed to designate a beneficiary. If they were, the ERISA plan administrator does not have to look anywhere else to determine who gets the death benefits.
ERISA was created for a number of reasons, not the least of which was to encourage employers to offer welfare and pension benefits to employees. A key element to that is keeping costs down. Because of that, the inexpensive and speedy resolution of benefit disputes has become a key part of ERISA.
In the context of death benefits, the U.S. Supreme Court case has clearly stated that any benefit claim stands or falls by the “terms of the plan.” In a case called Egelhoff v. Egelhoff, 532 U.S. 141, 148 (2001), the Supreme Court developed what it called “a straightforward rule” that lets employers “establish a uniform administrative scheme [with] a set of standard procedures to guide processing of claims and disbursement of benefits.” It pushed state laws to the side, and focused only on what ERISA requires.
In Egelhoff, the Supreme Court considered a state of Washington statute which attempted to dictate whether a former spouse received death benefits. The law protected plan administrators from liability for making payments to a named beneficiary unless they have “actual knowledge of the dissolution or other invalidation of marriage.” However, it was the very liability at the heart of the statute that the Supreme Court explained was a problem. The Court said that federal law did not involve this type of liability, and ERISA administrators should have to contend with that kind of liability. It stated:
Requiring ERISA administrators to master the relevant laws of 50 States and to contend with litigation would undermine the congressional goal of “minimiz[ing] the administrative and financial burden[s]” on plan administrators-burdens ultimately borne by the beneficiaries. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990).
Egelhoff at 149-150. The Court held that a concept called ERISA preemption invalidated the state law as it applied to the ERISA plan administrator’s decision. More importantly, it drives home a core ERISA concept that ERISA administrators need not pay attention to state laws, and must instead focus exclusively on the terms of the Plan when administering benefit claims.
The Supreme Court later reinforced that the concept of enforcing plan documents extends to following beneficiary designation form procedures found in the plan documents. In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), the Supreme Court closed the door on inquiries into intent and other external factors, instead directing that administrators only have to follow the directives properly employed using plan-approved forms. In blunt language, Justice Souter stated,
The point is that by giving a plan participant a clear set of instructions for making his own instructions clear, ERISA forecloses any justification for enquiries into nice expressions of intent, in favor of the virtues of adhering to an uncomplicated rule: “simple administration, avoid[ing] double liability, and ensur[ing] that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.” Fox Valley & Vicinity Const. Workers Pension Fund v. Brown, 897 F.2d 275, 283 (C.A.7 1990) (Easterbrook, J., dissenting).
Kennedy, 555 U.S. at 301. Bringing it down to basics, Justice Souter continued:
And the cost of less certain rules would be too plain. Plan administrators would be forced “to examine a multitude of external documents that might purport to affect the dispensation of benefits,” Altobelli v. IBM Corp., 77 F.3d 78, 82–83 (C.A.4 1996) (Wilkinson, C. J., dissenting), and be drawn into litigation like this over the meaning and enforceability of purported waivers. The Estate’s suggestion that a plan administrator could resolve these sorts of disputes through interpleader actions merely restates the problem with the Estate’s position: it would destroy a plan administrator’s ability to look at the plan documents and records conforming to them to get clear distribution instructions, without going into court.
Kennedy, 555 U.S. at 301.
The Supreme Court’s decisions in Egelhoff and Kennedy confirm that ERISA plan administrators do not need to dig into facts outside of the plan’s beneficiary designation forms. Even though designation forms by themselves may not be plan documents, the plan or summary plan description can “provide that the plan administrator will pay benefits to a participant’s designated beneficiary, with designations and changes to be made in a particular way.” Id. at 305. When someone does not follow the rules explained in the employer’s group life insurance ERISA plan, the Supreme Court held that the administrator does not need to follow the designation of beneficiary if it was not made in the manner required by the plan.
TAKEAWAY: Check your employer’s group plan rules about designating beneficiaries, and make sure you follow them.
To find out how to get ERISA plan documents from employers, read:
Life Insurance or Pension/401k claim denied because of beneficiary dispute? Call ERISA Attorney John V. Tucker for a free consultation at (866) 282-5260.