In many cases, upon divorce, marriage, or death of a beneficiary employees should be choosing new designated beneficiaries. A recent supreme court ruling makes that even more important. We encourage clients to remind employees to update beneficiary forms annually and upon any major life event.
The United States Supreme Court recently ruled that ERISA plan benefits are to be paid to the designated beneficiary, regardless of whether that beneficiary may be an ex-spouse who waived his or her rights to insurance proceeds as part of a property settlement agreement reached in the divorce. See Kennedy v. Dupont, 129 S.Ct. 865 (2009). The plan at issue in Kennedy was a pension plan, however, the holding of Kennedy extends to employee welfare plans as well. ERISA specifically provides that only a Qualified Domestic Relations Order (QDRO) will be binding on employee benefit plans. In order to qualify as a QDRO, a settlement agreement must contain very specific language regarding the benefits at issue, and technically there must be an assignment of benefits under a QDRO rather than a waiver – i.e., “the benefits payable under my husband’s Unum group life insurance policy in the amount of $100,000 shall be payable to our children.” If a divorce decree contained similar language, under the law the carrier likely would be obligated to honor such an assignment over the beneficiary designation. Rarely, if ever, QDROS are used however; instead, carriers are typically are presented with divorce decrees that state, “wife hereby waives all right, title and interest in and to husband’s insurance.” If we are presented with similar language in a divorce decree, and the ex-spouse has remained the designated beneficiary under an ERISA plan, under Kennedy, the ex-spouse is the appropriate beneficiary.
Another point worth mentioning is that state laws revoking ex-spouses as beneficiaries upon divorce have been held to be preempted by ERISA. See Egelhoff v. Egelhoff, 532 U.S. 141 (2001). In states such as Washington, an ex-spouse who remains the designated beneficiary after a divorce may nonetheless be the appropriate beneficiary of an ERISA plan benefit, despite state law to the contrary.