Unbeknownst to some insureds and their attorneys, ERISA can thwart the most obvious intentions of insureds if they are negligent in following up on changes in beneficiary status. Most of the time this issue is involved in matrimonial and estate cases.
Except in the most unusual cases, a spouse who divorces his or her mate, does not want the proceeds of his or her estate (ERISA andotherwise) to go to the divorced mate.
Yet, should the participant in an ERISA plan fail to properly change the plan beneficiary to reflect the changed circumstances of his or her life, the ERISA plan administrator is forced to pay benefits to the beneficiary listed in the plan, Kennedy v. Plan Administrator for DuPontSavings & Investment Plan, 555 U.S. 285 (2009).
Because ERISA preempts all other law which might affect this outcome, the beneficiary shown in the policyholders’ plan documents is the one who to whom the plan administrator has to deliver the benefits.
The Kennedy court based its decision on three main points:
* ERISA requires simple plan administration.
* Avoiding the danger of the administrator having to pay double benefit payments.
* Encouraging speedy benefits payments.
It is essential for a plan participant to get to the administrator as quickly as possible with any change in circumstances. To delay may mean
that ERISA may cause benefits to go to the wrong person or require extensive litigation and legal costs for the benefits to go to the personactually intended by the plan participant.
Although Kennedy supported the law of ERISA preemption strongly, it specifically left open the issue of whether preemption applied once the benefits had been paid as required by ERISA.
The United States Court of Appeals for the Fourth Circuit recognized that this “straitjacket” approach can lead to obviously inequitable results as shown in Andochick v. Byrd, 2013 WL 781978 (CA4 (Va.)) .
In that case, Mrs. Andochick married Mr. Andochick in February, 2005, and separated in July, 2006, at which time Mr. Andochick agreed to and signed a marital settlement agreement in which he gave up any rights to Mrs. Andochick’s survivor benefits and life insurance policies in both of which he had been made beneficiary by his wife at the time they were married.
Following Kennedy and a long line of cases, the Fourth Circuit Court of Appeals agreed with the District Court that Mr. Andochick, as the named beneficiary in her ERISA plan, had to receive the benefits of the plan and the proceeds of his ex-wife’s life policy.
But, the Court also agreed that once proceeds were allocated to the ex-husband, state or Federal courts were not preempted from dealing with the proceeds in line with his waivers and free of ERISA preemption.
The opinion makes it clear that ERISA’s strict interpretation of which party gets ERISA
benefits proceeds, is meant to facilitate the swift and smooth operation of ERISA plans.
Preemption is not meant as a back door through which a party can grab benefits to which, by all reasonable and equitable measures, he isnot entitled.