In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan et al, 129 S. Ct. 865 (January 26, 2009), the U.S. Supreme Court resolved a split among lower courts regarding whether a former spouse designated as a beneficiary can waive his or her rights to a pension benefit pursuant to a divorce decree. In that case, William Kennedy, a participant in the DuPont Savings and Investment Plan, designated his then wife, Liv Kennedy, as the sole beneficiary of his plan benefits. William and Liv divorced in 1994, subject to a decree that Liv was divested of her right, title and interest in the plan benefits. However, William did not execute any documents removing Liv as a beneficiary of the plan benefits even though he did execute a new beneficiary designation form naming his daughter, Kari, as the beneficiary under DuPont’s Pension and Retirement Plan.

On William’s death in 2001, Kari was named the executrix of her father’s estate and she asked DuPont to distribute the Savings and Investment Plan benefits to William’s estate. DuPont, instead, relied on William’s beneficiary designation form and paid the plan benefits to Liv. The estate then sued DuPont and the plan administrator (together, “DuPont”), claiming that the divorce decree amounted to a waiver of the plan benefits on Liv’s part and that DuPont had violated ERISA by paying the benefits to William’s original designee, Liv. The plan administrator argued that the waiver was an alienation of the plan benefits, which was prohibited under ERISA, and that the waiver was not a qualified domestic relations order as required to be exempt from the anti-alienation provision.

The Supreme Court ruled that Liv did not attempt to direct her interest in the plan benefits to William’s estate or any other potential beneficiary through the divorce decree (which was considered not to be a qualified domestic relations order), and, accordingly, the Court determined that her waiver did not constitute an assignment or alienation rendered void under ERISA.

The Court then turned to the issue of whether the plan administrator was required to honor Liv’s waiver, with the consequence of distributing the plan benefits to William’s estate, in view of the fact that Liv was still designated as the sole beneficiary of the plan benefits. The Court concluded that the plan administrator did its statutory duty under ERISA by paying the plan benefits to Liv in conformity with the plan documents. Accordingly, the Court held that although the waiver was not invalid, Liv, the former spouse, retained her entitlement to the plan benefits.

This decision affects not only employee benefits practitioners, but also family law practitioners. Once a divorce occurs, the parties will need to review employee benefit plan documents to determine whether the beneficiary designation form will need to be modified or changed to conform to the terms of the divorce decree. However, left unresolved by this decision is the impact that prenuptial agreements will have when there is an agreement to waive benefits in an employee benefit plan governed by ERISA.