Fact-set: Ford worker dies soon after a contested Missouri divorce. His Ford retirement benefits include money in the TESPHE savings plan and a group life insurance benefit. During the divorce the Ford worker changed the beneficiary on the life insurance without the wife’s consent. The beneficiary on the TESPHE never changed and the ex-spouse is still the named beneficiary. What happens?
Like many states, Missouri law includes a statute that provides that upon divorce, the ex-spouse loses all rights as a named beneficiary of property owned by the other spouse. See VAMS 461.051.1. But while this law may bar the ex-spouse as beneficiary on an IRA (an example of a non-ERISA asset), a Ford worker’s retirement includes (1) the TESPHE savings plan, and/or (2) a pension plan–both of which are governed by federal law known as ERISA (Employee Retirement Income Security Act), as later modified by the REA (Retirement Equity Act). ERISA preempts/overrides state law on matters sufficiently related to ERISA–including Missouri’s section 461.051.1. See Egelhoff v. Egelhoff, 532 U.S. 141 (2001).
Note that the group life insurance provided by the employer is a welfare plan–not a retirement plan and thus not governed by ERISA or REA federal law.
Key questions: (1) can the Ford worker validly change (before the divorce is final) the beneficiary on the life insurance benefit without the spouse’s consent?; and (2) is the ex-spouse entitled to the balance in the TESPHE savings plan since the ex-spouse remains the named beneficiary–even though the divorce judgment awarded all the retirement to the ex-husband/employee?
Generally, Missouri law and ERISA’s 29 U.S.C. section 1055 seems to allow change of beneficiary of LIFE INSURANCE during the marriage without the spouse’s consent. So the Ford employee’s change of beneficiary on the employee life insurance benefit from spouse to adult son appears to be valid and lawful where the welfare plan and the underlying life insurance policy itself do not expressly prohibit. See Sun Life Assurance Co. v. Mae Bell Benjamin, Case 1:09 CV 2452 (U.S. Dist. Ct., Northern District of Ohio, Eastern Division 2010). .
However, as to the FORD RETIREMENT, federal ERISA law governs. DURING THE MARRIAGE, 29 U.S.C. section 1055 protects the worker’s spouse from being left high and dry form the employee changing the beneficiary on the retirement while married, mandating by law that the spouse gets at least half of the pension (the “qualified joint and survivor annuity) UNLESS (1) the spouse consents in a very specific writing that is notarized or witnessed by a plan representative; or, (2) by a Qualified Domestic Relations Order (“QDRO”) used in the case of divorce. See subsection (c)(2)(A) of section 1055 as to how a spouse may waive her interest in the worker’s pension plan. And see 29 U.S.C. section 1056(d)(3) as to alienation/transfer of the spouse’s share by means of a QDRO. Simply put, Congress crafted ERISA to grant the worker’s spouse at least half of the pension plan benefits, and to prevent the transfer or taking of the spouse’s share of the pension plan benefits without the spouse’s consent.
But what about cases where the divorce court awards the retirement to the employee, only for the employee ex-spouse to fail to change the beneficiary after the divorce? A pair of U.S. Supreme Court cases squarely answer the question.
First, in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the high court held that pension plan administrators need only apply the language of the plan and pay the money to the last named beneficiary. In so ruling, the Court observed that payment of pension plan benefits is a central aspect of ERISA plans and that it is unduly burdensome to saddle plan administrators with the task of figuring out the various laws that nearly all 50 states have to prevent the ex-spouse from getting the pension plan money after the divorce. The Court focused on the need for the administrator to simply apply the pension plan’s provisions to determine the proper payee to save the time and expense of ascertaining myriad state laws and the innumerable interpleader lawsuits that would result to protect the administrator from double liability due to paying the wrong payee. So, with qualified pension plans, ERISA preempts state laws such as Missouri’s that attempt to cancel out the ex-spouse as the beneficiary after divorce. Consequently, if the employee-spouse fails to change the beneficiary after the divorce and leaves the now ex-spouse as beneficiary, the ex-spouse is entitled to employee’s pension plan monies.
Lastly, what of provisions commonly found in divorce settlement agreements which are often incorporated or quoted in the court judgments dissolving marriages–typically providing that each spouse forever waives all interests in the property awarded to the other party? This question the Supreme Court answered in Kennedy v. Kennedy, 129 S.Ct. 865 (2009), involving a pension plan, where the Court held that the plan administrator need only follow the dictates of the plan on which the employee left the ex-spouse as beneficiary after divorce. The plan administrator is free to IGNORE language in the divorce decree that the wife “is . . . divested of all right, title, interest, and claim in and to . . . [a]ny and all sums . . . the proceeds [from], and any other rights related to any . . . retirement plan, pension plan, or like benefit program existing by reason of [William’s] past or present or future employment.” Hence, the boilerplate waiver language in many divorce settlement agreements and judgments does not preclude the ex-spouse from receiving the proceeds of the pension plan on which she was left as named beneficiary after divorce.
Of note on page 15 of the Kennedy opinion is the Court’s statement that: “ERISA forecloses any justification for enquiries into nice expressions of intent, in favor of the virtures 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.'”
And on 17: “What goes for inconsistent state law goes for a federal common law of waiver that might obsure a plan administrator’s duty to act in accordance with the documents and instruments.'”
“And this case does as well as any other in pointing out the wisdom of protecting the plan documents rule.” (Also on page 17 of the opinion.)
In summary after considerable research of Missouri and federal common law, mind-mashing ERISA statutes, and U.S. Supreme Court opinions–the ex-spouse as cast above is the last named beneficiary on the TESPHE pension plan and as such entitled to those funds since there was no QDRO or consent divesting the ex-spouse as beneficiary. If you are an employee with retirement or pension, make absolutely sure that you change the benficiary away from the ex-spouse unless yours is the rare case where you want the ex-spouse to remain as beneficiary.
Kurt H. King
Law Office of Kurt H. King, 20 E. Franklin, Liberty, MO 64068
816.781.6000
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