In a recent unanimous decision, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan (1/26/2009), the U.S. Supreme Court ruled that if a deceased plan participant's former spouse is listed as the beneficiary of a pension or savings plan, the former spouse will receive the designated benefits even if he or she waived all rights to them in previous divorce proceedings.

The decedent, William Kennedy, participated in his employer's savings and investment plan (SIP) and named his wife as beneficiary. They later divorced and the divorce decree divested Mrs. Kennedy of her interest in the savings and investment benefits. Kennedy executed a change of beneficiary form for the pension plan, changing the beneficiary to his daughter, but failed to do the same for his savings plan. Upon Kennedy's death, the plan administrator paid the savings funds to his former wife per the beneficiary designation, contrary to the request of his daughter and his estate. The Estate filed suit against the plan administrator.

In its decision, the Court declared that the Estate's claim "stands or falls" "by the terms of the Plan." Savings and investment plans are governed by the Employee Retirement Income Security Act ("ERISA") which generally requires that plan administrators manage savings and investment plans "in accordance with the documents and instruments governing" them. ERISA sets forth rules that allow a plan participant to make his or her beneficiary designation clear. Here, the plan provided specific instructions for changing a beneficiary, which Kennedy failed to follow. Given the straightforward nature of the plan documents, the Court declared that the plan administrator was bound by the beneficiary designation made by Kennedy. Less certain rules would require a plan administrator to examine multiple external documents to determine their meaning and enforceability.

ERISA also requires covered pension plans to require that benefits may not be assigned or transferred. Thus, Mrs. Kennedy could not have assigned or transferred her interest in the benefits via the divorce decree. While the execution of a Qualified Domestic Relations Order ("QDRO") provides an exception to this anti-alienation rule (and the Kennedy's did not execute a QDRO), it was not relevant here since there was no attempt by the Kennedy's to name an alternate payee for these benefits. The plan further provided a specific procedure for waiving one's benefit, which Mrs. Kennedy failed to follow.

Plan administrators should review their plan documents to make sure that it is clear that a plan participant must change his or her beneficiary after a divorce, and cannot rely on any other document, including the divorce decree. Plan administrators should further ensure that instructions regarding how to change a beneficiary are clear and that the administrators themselves follow the procedures as outlined in the documents. Further, if a waiver procedure is not already in place, plan administrators should consider setting up such a procedure. In this case, Kennedy's benefits would not have been paid to his former wife had she followed the documented waiver procedure. Finally, plan administrators should keep in mind that the ruling in this case extends to all benefit plans covered by ERISA, and not just savings plans.

If you wish to discuss reviewing or updating your plan documents or have any questions about this case, please contact the NFC attorney with whom you normally work or contact Marisa Christmas at (973) 564-9100 or via e-mail at mchristmas@nfclegal.com so that NFC may best direct your inquiry to the appropriate attorney.