Although a deceased participant’s benefit in a 401(k) plan must be distributed to an ex-wife despite a prior waiver of her rights to the benefit, the U.S. Court of Appeals for the Third Circuit ruled that the participant’s estate may subsequently sue the ex-wife for recovery of the distributions. The ex-wife in this case waived her right to the proceeds of the decedent’s 401(k) plan upon their divorce in 2003. In a scenario that occurs often, the participant neglected to replace his ex-wife as designated beneficiary of the 401(k) benefit following their divorce. On the participant’s death nine months later, both the participant’s estate and the ex-wife claimed a right to the plan proceeds. Following U.S. Supreme Court precedent in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (2009), a lower court determined that the plan administrator must act in accordance with the plan documents and instruments when paying benefits and must therefore distribute the 401(k) benefit to the ex-wife. This conclusion was not challenged on appeal and was upheld by the U.S. Court of Appeals for the Third Circuit.  

However, the Third Circuit disagreed with the lower court’s conclusion that the estate could not sue the ex-wife directly under contract law to enforce her waiver and recover the benefits. The lower court reasoned that allowing the estate to sue the ex-wife would undermine one of the principal objectives of Employee Retirement Income Security Act of 1974 (ERISA)—namely, that “named beneficiaries actually receive the benefits of ERISA-governed plans.”  

Distinguishing this case from prior cases where plan administrators had not yet distributed benefits, the Third Circuit found no impediment to permitting a lawsuit to enforce the common law waiver after the benefits have been paid to the ex-wife. As the court reasoned, “permitting suits against beneficiaries after benefits have been paid does not implicate any concern of expeditious payment or undermine any core objective of ERISA.” (Estate of Kensinger v. URL Pharma Inc., 3rd Cir. 2012)