In Kennedy v. DuPont Savings & Inv. Plan (Sup. Ct., Jan. 26, 2009), a unanimous Supreme Court held that a plan must distribute benefits to a participant’s ex-wife who was the named beneficiary at the time of the participant’s death, notwithstanding the ex-wife’s waiver of those benefits as part of a divorce settlement.

The participant filed a beneficiary designation naming his wife as the sole beneficiary under the plan. When the participant and his wife later divorced, she relinquished all rights to any employee benefit plan accounts as part of the divorce settlement. However, the participant did not remove his ex-wife as a beneficiary under his Company’s 401(k) plan, though he did execute a new beneficiary form naming his daughter as the beneficiary under the Company’s defined benefit plan. When the participant died, his daughter became the executrix of his estate and asked DuPont to distribute his $400,000 account to the estate. The plan refused, and paid the account balance to his ex-wife in accordance with the beneficiary designation on file. The participant’s daughter sued the administrator and DuPont, arguing that the divorce settlement amounted to a waiver of benefits and that the plan violated ERISA by paying benefits to the participant’s ex-wife.

The Supreme Court held that a beneficiary can disclaim benefits through a waiver that does not qualify as a QDRO without running afoul of ERISA’s anti-alienation provision. However, the Court also held that any waiver must be in accordance with the plan’s waiver procedures to be effective. In this regard, the Court found that the participant had more than enough time to change his beneficiary designation and that the administrator properly considered the valid beneficiary designation and disregarded his ex-wife’s disclaimer of benefits that did not comply with the plan’s procedures.

Kennedy gives plan administrators the opportunity to:

  • review their plan documents and summary plan descriptions (“SPDs”) to determine whether they should adopt specific procedures for waiver of benefits. If plan documents and SPDs already contain a waiver procedure, plan administrators and benefits personnel should review these procedures to ensure that they are properly communicated to plan participants seeking information following a divorce. If the plan does not include a provision for a waiver of benefits, the administrator may wish to consider adding a formal waiver procedure; and
  • review current procedures and forms regarding beneficiary designations. Some plans provide for automatic revocation of a spousal beneficiary designation after a divorce. Others provide that the beneficiary designation remains valid until properly revoked or changed by the participant. Administrators should be familiar with these provisions and should review beneficiary forms to see that the rules are clearly communicated.