Feuer on Who is Entitled to Life Insurance Benefits and Top-Hat Benefits from an ERISA Plan Following a Divorce or a Marital Separation?

Albert Feuer (Law Office of Albert Feuer) has posted on SSRN his piece in the NYSBA Family Law Review Newsletter: Who is Entitled to Life Insurance Benefits and Top-Hat Benefits from an ERISA Plan Following a Divorce or a Marital Separation?

Here is the abstract:

The extent, if any, to which a participant’s spouse or former spouse is entitled to the participant’s employee benefits is often an important issue in divorces and marital separations. State courts thus frequently issue domestic relations orders (“DROs”) pertaining to such benefits. Benefit entitlements of ERISA plans, i.e., pension plans and welfare plans (which include life insurance plans), are determined by the terms of those plans. See generally Kennedy v. Plan Administrator of the DuPont Savings and Investment Plan, 555 U.S. (2009), 129 S. Ct. 865, 2009 U.S. LEXIS 869 (January 26, 2009).

ERISA plans generally need not follow state-court orders. On the other hand, ERISA plans must follow the designation terms of those DROs which are qualified domestic relations orders (“QDROs”). Questions have been raised about whether life insurance plans and top-hat plans (which are pension plans maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees), must follow the designation terms of a DRO that “satisfies the QDRO requirements,” but contradicts a designation made pursuant to the plan terms.

Many courts, including quite recently a federal district court in Rhode Island and one in New Hampshire recently and incorrectly disregarded the QDRO requirement that the plan be subject to the ERISA Alienation Prohibition. See Metropolitan Life v. Drainville, 2009 U.S. Dist. LEXIS 63613 (D.C. R.I. July 23, 2009) and Metropolitan Life v. Hanson, 2009 U.S. Dist. LEXIS 92044 (D. N.H. Oct. 1, 2009), respectively. The Alienation Prohibition does not apply to life insurance plans or to top-hat plans. Thus, the QDRO requirement that ERISA plans follow the designations of such orders s are not applicable to such plans. Therefore, the court should have directed the Metropolitan Life plan to disregard the DRO at issue in Drainville and Hanson, and should have held that the participant’s designee pursuant to the plan terms, his second wife and third wife, respectively, was entitled to receive and keep the proceeds.

As always, Albert is timely, relevant, and correct on an important area of employee benefit law administration.

PS