Prior to his death, a participant in his company’s pension plan attempted to name a trust as the primary beneficiary of his benefits under the plan. Under the terms of the plan, the participant was required to obtain his spouse’s consent in order to designate a beneficiary other than the spouse. The participant submitted the required beneficiary designation paperwork to the plan, including what appeared to be a validly executed spousal consent form. After the participant died however, the spouse’s guardian filed a claim for the benefits. The plan then learned that the participant had the spousal consent form notarized without his spouse being present, making the consent invalid because it was not properly witnessed. The plan also received evidence establishing that at the time she allegedly signed the form, the spouse was not mentally competent to waive her rights and consent to another beneficiary being named. The plan therefore determined that the spouse did not waive her rights, notified the trust of its conclusion that the spouse was the primary beneficiary, and paid the benefits to the spouse.
The trust then sued the plan for failure to pay benefits and breach of fiduciary duty under ERISA. The plan’s decision was upheld at the district court level, and the trust argued on appeal to the U.S. Court of Appeals for the Seventh Circuit that the plan breached a fiduciary duty and did not give the trust’s claim a “full and fair review” when it denied the trust’s claim and paid benefits to the spouse. The Seventh Circuit examined the plan’s determination under the deferential arbitrary and capricious standard of review and concluded that the determination was reasonable in light of the evidence regarding the improper execution of the spousal consent form and the spouse’s incapacity. The court also found that the trust’s claim was given a full and fair review because the plan engaged in a “diligent” investigation and adequately communicated the basis of its determination to the trust. The court would not consider the trust’s fiduciary breach claim, explaining that since the trust was seeking monetary damages, it would have to have been entitled to at least some benefits in order to pursue the claim. In any event, the court noted there was no indication of flawed decision-making on the part of the plan administrator. Accordingly, the court upheld the plan’s decision to pay the benefits to the participant’s spouse. This case demonstrates the importance of ensuring that all beneficiary designation requirements are properly met and highlights the importance to plan administrators of conducting detailed investigations into competing benefit claims. (Ponsetti v. GE Pension Plan, 7th Cir. 2010)