Tuesday, October 7, 2008

Analysis of Oral Argument Transcript in ERISA DuPont Case

4united_states_supreme_court_112904 The Supreme Court heard oral argument in the case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan this afternoon.  The case concerns whether a divorcing spouse may waive her rights to spousal pensions benefits without going through the qualified domestic relations order (QDRO) process set out in the exceptions to ERISA's anti-alienation rule.

What follows is analysis of that oral argument transcript based on my reading of the oral argument transcript in DuPont:

1.   Counsel for Kennedy argues that the Fifth Circuit erred in holding that the only way a divorcing spouse can waive the right to  pension benefits is by executing a QDRO.  In other words, counsel argues that the divorcing spouse's voluntary and knowing waiver should be enough even without filling out a formal QDRO without all the bells and whistles.

2.  There is also a separate argument that appears to go against the petititoner - and pointed out by Justice Kennedy - that there were means for participants and beneficiaries to make a change, and they weren't
followed here.

3.  Not a good sign that Justice Alito does not seem to be buying the voluntary waiver argument: "JUSTICE ALITO:  I'm not sure I'm getting  this argument.  There's not -- the argument isn't that there was a QDRO; the argument was that he could have  disposed of this through a QDRO.  And he could have done  that, and he could have named an alternate payee in the  QDRO.  He could have named his daughter, for example."

4.  Counsel for Kennedy responds: "the way pension planners understand it is that you use a QDRO for a
transfer of benefits, not for a bare waiver.  And that's where the U.S. Solicitor General supports our position
and reads this and says that's consistent with Treasury's own, now harmonized with Labor's, interpretation of the anti-alienation clause."

5.  Helpful as always, Justice Scalia provides Counsel with his argument: "JUSTICE SCALIA:  And your point is this has been no assignment or agency, so we don't need the QDRO exception.  There is nothing in here that violates  anything in the statute. MR. FURLOW:  I completely agree with that analysis."

6.  Both petitioner and the solicitor general supporting the pettitioner spend some time considering the argument that the plan documents control and allow the change in beneficiarty designation without a QDRO.  The Court is reluctant to hear that argument because it has not been fully briefed. In addition, the solicitor general does not agree with the petitioner that there should be a formulation of a Federal
common law rule on the matter.

7.  Respondents also believe the plan documents question is rightly before the Court and think the case could be decided as an alternative on this ground even though the court did not grant cert on it, but the parties and amici brief it.

8.  As to the QDRO issue, respondent DuPont takes the view that, "the rule of law that governs this case is that pension plan  administrators must pay benefits in accordance with a  qualified domestic relations order, and they may not pay benefits in accordance with a nonqualified order."

9.  Respondent says whether it is a waiver of the benefits and the benefits go anywhere is irrelevant. Instead, "It doesn't say anything about  where it goes.  It just says if it's a QDRO, you pay it,
and if it's not a QDRO, you don't pay it."  Counsel explains nicely the policy behind this straightforward rule: "It didn't want the plan  administrators to have to try and divine the intention of the parties, didn't want the plan administrators to  have to hold a factfinding hearing before it could pay plan benefits.  That is completely foreign to the  efficient and simple operation that Congress had in mind."

This is again one of these complicated ERISA cases concerning anti-alienation rules, beneficiary designation after marital dissolution, and the role waiver may or may not play.  I have to say this is one of the best explanation of the issues that I have seen from a counsel - in this case, the respondent counsel. Usually, it appears the Justices are one step ahead in their questioning and are just validating their views.
In this case, on the other hand, the Justices were really learning about a complex area of ERISA law from the skilled practitioner.

As such, I think that this is a case that might turn on the competence of counsel.  I foresee a 9-0 victory for the respondent and the view that benefits may only be paid in accordance with a qualified domestic relations order and the waiver in this case by the former spouse did not meet that standard.



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