Sunday, May 6, 2012
Albert Feuer has posted on SSRN his latest article, "A Misguided Kennedy Offspring from the Third Circuit," which will appear in Tax Management Weekly. The abstract:
The Third Circuit, in Estate of William Kensinger, Jr. v. URL Pharma, 2012 U.S. App. LEXIS 5741 (3rd Cir. March 20, 2012) (“Kensinger”), recently held that a federal common-law waiver by a participant’s designee may be used to force the designee to transfer her benefit payment to the person who would be entitled to the benefit, if the designee were not so entitled. The Third Circuit, which relied largely on the tenth footnote in Kennedy v. Plan Administrator of the Du Pont Savings and Investment Plan, 555 U.S. 285 (2009) (“Kennedy”), thereby entered the fray over whether a person with a superseded claim to an ERISA benefit may, after the plan has distributed the benefit, wrest the benefit in full, or in part, from the owner and recipient of such benefit.
ERISA § 514(a) preempts state-law ownership claims to employee benefits, unless the terms of the ERISA plan provide for such a claim. The terms of most pension plans must provide for compliance with the terms of a domestic relations order that satisfies the QDRO requirements. The terms of other plans need not provide for the deference to any domestic relations orders. Kennedy discussed the effectiveness of a federal common-law waiver that is part of a domestic relations order.
Kennedy provided that (1) ERISA does not preempt a benefit waiver by a participant’s former spouse “embedded in a domestic relations order;” and (2) such waivers are superseded unless the plan terms provide for such a waiver. Thus, if the plan terms do not provide for such a waiver, the default designee may not use the waiver to force the plan to pay it the benefit rather than the former spouse. Moreover, the result appears to be the same if a plan’s terms provide for such a waiver without discussing the rights of the default designee to the waived benefit. Such plan provisions only appear to permit the former spouse to voluntarily decline the benefit.
The paper argues that a person, with a preempted or superseded ownership benefit claim, may not wrest the benefit in full, or in part, from the owner and recipient of such benefit from the plan. In short, Kensinger was decided incorrectly.
Albert notes that not everyone agrees with his position: Geoff Ward, “Clear, Voluntary, and Made in Good Faith: An Alternative to the Supreme Court’s Incorrect Approach to Resolving Conflicts Between Common Law Waivers and ERISA Plan Documents in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan,” 64 Tax Law, 1003 (2011).