The situation in Andochick is not at all uncommon when couples divorce:

Scott Andochick and Erika Byrd were married. During the marriage, Erika participated in a 401(k) plan and a life insurance plan with her employer, and executed beneficiary designations for both plans, naming Scott as her primary beneficiary. Scott and Erika separated and entered into a marital settlement agreement. In the agreement, Scott “waive[d] any interest, including but not limited to any survivor benefits, which he may have” in Erika’s 401(k) plan, and he released and relinquished any future rights “as a beneficiary under any life insurance policy . . . or any other beneficiary designation made prior to the execution of th[e] Agreement.” Scott also agreed to execute any documents required to carry out the provisions of the agreement. The couple divorced, and the judgment of divorce incorporated their marital settlement agreement. Unfortunately, however, at the time of her death, Erika had failed to name a new beneficiary of her ERISA plans.

See Andochick, 2013 WL 781978, at * 1-2.

The ERISA plan administrators of Erika’s 401(k) and life insurance plans determined that the proceeds of both plans should be paid to Scott, because he remained the named beneficiary of the plans. Id. at *1. Erika’s parents (the administrators of her estate) appealed the administrators’ decisions. Id. In addition to appealing the plan administrators’ decisions, they made a direct claim against Scott, asserting that he was in breach of the marital settlement agreement and demanding that he sign waivers renouncing any right to the plan proceeds, but Scott refused. Id.

Scott filed an action in the federal district court for the Eastern District of Virginia asking for a declaratory judgment that ERISA preempts the waiver provisions in the marital settlement agreement and the Byrds, therefore, had no claim to the plan proceeds. Id. In this regard, ERISA preempts “any and all State laws” insofar as they “relate to” any employee benefit plan. 29 U.S.C. § 1144(a).

The Byrds, in turn, filed suit in Maryland state court seeking to find Andochick in contempt of the marital settlement agreement and judgment of divorce, and to order him to waive his rights to the 401(k) and life insurance proceeds. Id. at *2. The Maryland court found Andochick in “contempt of the judgment of divorce and ordered him to take all actions necessary to renounce his interests in Erika’s plan benefits.” Id. However, the Maryland court declined to address what effect ERISA might have on the ultimate enforceability of the waiver. Id.

The Byrds took this Maryland court decision back to the federal court, where the Hon. Liam O’Grady of the Eastern District of Virginia “directed” the plan administrators “to pay the ERISA funds to Andochick,” and held that, “[i]n accordance with the [state court’s] order, Andochick must then waive his right to these funds, distributing them instead to Erika’s estate.” Andochick v. Byrd, No. 1:11–cv–739, 2012 WL 1656311, at *13 (E.D.Va. May 9, 2012).

On appeal, the Fourth Circuit affirmed. Though the Kennedy Court expressly declined to decide this issue, the Fourth Circuit noted that in Kennedy, the Supreme Court emphasized three important ERISA objectives: “[1] simple administration, [2] avoid[ing] double liability [for plan administrators], and [3] ensur[ing] that beneficiaries get what’s coming quickly, without the folderol essential under less-certain rules.” Id. at *3. The Fourth Circuit then held that “[a]llowing post-distribution suits to enforce state-law waivers does nothing to interfere with any of these objectives.” Id. Rather, “Kennedy merely dictates that the plan administrator distribute plan benefits to the named beneficiary” which “ensures simple administration regardless of whether post-distribution suits are permitted, because the plan administrator [has] no role in any post-distribution proceedings.” Id. Likewise, “post-distribution suits do not expose the plan administrator to double liability—only the named beneficiary has any claim against the plan administrator.” Id. Thus, the Fourth Circuit concluded that permitting post-distribution suits “accords with ERISA’s objectives discussed in Kennedy” and, therefore, ERISA does not preempt post-distribution suits against ERISA beneficiaries. Id.

In so holding, the Fourth Circuit cited approvingly to the Third Circuit’s opinion in Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131 (3d Cir. 2012), when explaining how its holding squares ERISA’s goals of efficient and consistent administration of plans, with the fact that beneficiaries cannot use ERISA as a shield to hold onto money that is not rightfully theirs:

        . . . the goal of ensuring that beneficiaries ‘get what’s coming quickly’ refers to the expeditious distribution of funds from plan administrators, not to some sort of rule providing continued shelter from contractual liability to beneficiaries who have already received plan proceeds. Permitting a post-distribution suit against a plan beneficiary based on his pre-distribution waiver does not prevent the beneficiary from “get[ting] what’s coming quickly.” Rather . . . it merely prevents him from keeping what he “quickly” received.

Id. at *3 (citing Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131, 136 (3d Cir. 2012)).