If you have questions about divorce, legal separation, alimony entitlement, or alimony in Connecticut, please feel free to call the experienced divorce attorneys at Maya Murphy, P.C. in Westport today at 203-221-3100 or email Joseph C. Maya, Esq. at JMaya@Mayalaw.com.

Key Litigated Issue

On March 20, 2012, the US Court of Appeals for the Third Circuit issued an opinion in Kensinger v. URL Pharma, Inc. The key litigated issue was whether the estate of a participant in a 401k plan can sue the participant’s former spouse to enforce the spouse’s waiver of rights to plan benefits even though the spouse received a distribution of the participant’s benefits as a named beneficiary.

Background

In Kensinger, an employee named his wife as the plan’s primary beneficiary under his 401(k) plan. Eight years later, the employee and his wife divorced, and the wife waived her right to any proceeds under her husband’s 401k plan. The employee failed to remove his wife as a beneficiary.
Shortly after their divorce, the employee died intestate. After the plan benefits were distributed to the employee’s former spouse in accordance with the beneficiary designation, the employee’s estate filed an action against his employer and former spouse in New Jersey Superior Court seeking a declaration that the estate was entitled to the benefits. The employer removed the case to the US District Court for the District of New Jersey.
The District Court granted summary judgment to the former spouse, holding that:
  • ERISA required the employer to distribute the plan proceeds to the former spouse because she was the named beneficiary.
  • Once the former spouse received the plan benefits, the estate could not assert a claim against her for those benefits.
The District Court relied on the US Supreme Court’s decision in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, which addressed a set of circumstances very similar to this case and held that a former spouse was entitled to receive plan benefits, despite a waiver, because ERISA requires a plan administrator to strictly adhere to the documents that govern the plan.
The estate appealed the District Court’s decision to the Third Circuit.

Outcome

On review of the District Court’s decision, the Third Circuit affirmed in part and reversed in part, holding that the employee’s former spouse was entitled to receive the plan benefits, but once she had received those benefits, the estate could sue her to enforce the waiver.
In Kennedy, the Court relied on two policy concerns in support of adhering to the plan documents and distributing plan proceeds to the named beneficiary:
  • The need for clear rules to minimize the administrative and financial burdens on plan administrators.
  • The avoidance of potential double liability on plan administrators since plan administrators could be sued by:
    • the estate for disregarding a common law waiver; and
    • the former spouse for failure to distribute benefits in accordance with the plan documents.
However, the Third Circuit ruled that these policy concerns would not be threatened by post-distribution litigation because the participant’s former spouse was sued after she received the plan benefits. The Third Circuit held that in such circumstances, a lawsuit against the former spouse does not complicate plan administration, and it does not create the possibility of double liability for the plan administrator. Litigation of an “ordinary contract dispute” after the plan beneficiary has been paid does not undermine ERISA’s core objectives.
The Third Circuit also cited several federal cases which held that ERISA allows creditors to sue named beneficiaries after they have received plan benefits.

Practical Implications

Employers in the Third Circuit should be aware that ERISA does not prohibit an ordinary contract law suit against a beneficiary by an estate after benefits have been paid. However, this should not impact how employers administer their benefit plans under ERISA and should continue to follow the terms of the plan documents and beneficiary designation forms when paying plan benefits.

For a free consultation, please do not hesitate to call the experienced family law and divorce attorneys at Maya Murphy, P.C. in Westport, CT at 203-221-3100. We may also be reached for inquiries by email at JMaya@mayalaw.com.

Source: WESTLAW

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