Thursday, November 6, 2008
We are privileged to have Albert Feuer, eminent ERISA practitioner, provide this updated analysis on the Kennedy ERISA case before the Supreme Court based on its recent request for further briefing on the issues:
A Curious ERISA Case Before the Supreme Court Becomes More Curious
Kennedy v. DuPont Savings Plan Administrator, No. 07-636 has become even more curious. A participant’s estate claimed to be entitled to receive the participant’s death benefits because it was his secondary beneficiary. The dispute was whether the participant’s primary designation had been rendered ineffective by a domestic relations order that was not a qualified domestic relations order (“QDRO”). On October 28, 2008, the Supreme Court requested the parties brief a “new question,” which question suggests that the Court is confused. The Supreme Court certified the following general question for review:
Was the Fifth Circuit correct in concluding that ERISA’s Qualified Domestic Relations Order provision, 29 U.S.C. §1056(d)(3)(B)(i), is the only valid way a divorcing spouse can waive her right to receive her ex-husband’s pension benefits under ERISA?
This question may be answered sensibly by first establishing the source of the right whose waiver is at issue. There would appear to be no disagreement that under ERISA, planterms determine whether the divorcing spouse is a beneficiary entitled to receive the pension benefits. Neither party, however, took this approach.
The disagreement is about how may such designation be rendered ineffective, thereby entitling the secondary beneficiary, the participant’s estate in this case, to the benefits. One would presume that the plan administrator would argue that a designation may only be rendered ineffective if it is revoked pursuant the plan terms. One would presume that the participant’s estate would argue that the designation may also be rendered ineffective by common law principles. Neither party so argued. Thus, the Supreme Court did not resolve the issue by setting forth the circumstances, if any, in which the issue is associated with an ERISA gap, which common law may bridge. The Supreme Court, however, requested briefs regarding:
Whether 29 U.S.C. §1104(a)(1)(D), mandating administration of a plan in accordance with plan documents, required that the distribution in question be waiver of her interest was not otherwise subject to statutory bar. made to Liv Kennedy, even on the assumption that a
The Court, like the plan administrator, is focusing on the plan administrator’s payment obligation, rather than the divorcing spouse’s benefit entitlement. The Court is giving the participant’s estate the chance to supplement its assertions that (1) the overriding ERISA fiduciary obligation to act “solely in the interest of the participants and beneficiaries” makes common law applicable; and (2) documents, such as designation forms, marriage certificates and common law waivers, that are not inconsistent with plan documents, determine designations.
There are three reasons why it is misleading to focus on the plan administrator’s payment obligation, which several circuits consider of little import, rather than plan entitlements.
First, it suggests that the primary purpose of ERISA is the promotion of administrative convenience, rather than the protection of the employee benefits of participants and beneficiaries. Much of the argument by the parties and amici in this case is devoted to the contrasting views of administrative burdens. Very little is devoted to the statutes that determine benefit entitlements.
Second, a focus on the payment obligation may give short shrift to ERISA mandates. These mandates, such as the prohibition on the alienation or assignment of pension benefits, must be part of plan terms, but need not be part of the plan documents. Plan fiduciaries may only follow plan documents to the extent that the terms are consistent with ERISA.
Third, fiduciaries are not always obligated to pay persons their benefit entitlements. The plan administrator devoted considerable attention to ERISA § 206(d)(3)(H), which, in concert with ERISA § 206(d)(3)(I), frees plan fiduciaries from the obligation to make benefit payments to certain persons whose benefit rights are derived from QDROs.
The Supreme Court may further ERISA’s primary purpose if it issues a decision in favor of the plan administrator based on the core ERISA principle that ERISA benefit entitlements are determined by Plan terms, rather than based on the plan administrator’s payment obligation.