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Abstract: This Article argues that a beneficiary designation made pursuant to the terms of an ERISA plan determines who is entitled to survivor benefits from that plan. Such designation may not be superseded by (A) an agreement made in a marital dissolution or separation whereby a participant promises to make or retain a different designation (such agreements are not qualified domestic relations orders, QDROs, because QDROs are limited to orders directed not at participants but at ERISA plans); (B) an agreement made in a marital dissolution or separation whereby a participant's former or separated spouse relinquishes any interest in the participant's ERISA plan benefits; or (C) a state law or federal common-law principle whereby killers of a participant are deprived of the entitlement to the participant's survivor benefits from an ERISA plan. ERISA pension plans must incorporate the only two ERISA required beneficiary designations, QDROs and spousal survivor benefit designations. Neither statutory designation applies to an ERISA plan that is not a pension plan, such as a life insurance or disability plan. Thus, neither statutory designation may supersede a beneficiary designation made pursuant to the explicit terms of an ERISA life insurance or disability plan. ERISA voids both (A) a direct benefit claim against an ERISA plan that is not based on a designation that was made pursuant to the terms of the plan, and (B) an indirect benefit claim against the recipient of plan benefits that is not based on a designation that was made pursuant to the terms of the plan.
ERISA, beneficiaries, survivor, QDROs, claims, marital, common-law, agreement, preempt
Abstract: This Article proposes the following principles to determine if a release may deprive an individual of the right to a court review of the denial of a claim to an ERISA plan benefit entitlement: 1) The ERISA spendthrift prohibition on the assignment or alienation of pension benefits voids any release of such a plan or its fiduciaries from a claim that an individual is entitled to accrued benefits under such plan. This does not preclude settlements of pension benefit claims disputes. However, only judicially approved settlements are binding. 2) The ERISA fiduciary-duty provisions void any release of a welfare plan or its respective fiduciaries from claims that an individual is entitled to benefits under such plans unless, when the individual executed the purported release: (a) he or she voluntarily agreed to release the plan and fiduciaries from the claim at issue; (b) he or she fully understood what a prudent fiduciary would have known about the released rights; and (c) he or she received fair and reasonable consideration for such release. Thus, a court reviewing the effectiveness of a release must generally review the individual's underlying benefit claim. Therefore, fair settlements of bona fide ERISA claims disputes will be approved. However, releases which do not specify the benefits claim at issue, such as general releases in employee termination agreements do not generally affect such ERISA claims. 3) The fiduciary-duty provisions void any release of a pension plan or its fiduciaries, from a claim that an individual is entitled to benefits that accrued under such plan on or after the execution of the release, unless each of the three conditions set forth in the second principle is satisfied. Two such major releases are often at issue. First, the release of a right to participate in an ERISA plan, such as a 401(k) plan, and second, the release of a right to have payments that are part of a settlement of a non-ERISA dispute, such as one pertaining to a purported wrongful layoff, treated for pension benefit purposes in the same manner as similar compensation. These three principles, which rest upon ERISA's fundamental purpose and basic provisions, have not been consistently considered or applied by the courts. The courts have also rarely considered whether ERISA's prohibition of any agreement purporting to relieve fiduciaries of their duties voids any attempt to release claims to any ERISA benefit entitlements. Many courts have applied contract principles, supplemented at times by special scrutiny. Fiduciary principles, however, also place the burden of showing that the individual received fair consideration and fully understood the release on the party wishing to rely on an ERISA release that is not void ab initio. Thus, individuals have been wrongfully deprived of pension and welfare benefits to which they are entitled.
ERISA, benefits, releases, waivers, employee benefits, employment releases, general releases
Abstract: In Kennedy v. DuPont Savings and Investment Plan (the "DuPont Plan"), 2009 U.S. LEXIS 869 (January 26, 2009) the Supreme Court appeared to proclaim a "bright-line rule" that plan documents determine ERISA plan distributions. However, the Court blurred the bright-line rules applicable to (1) benefit entitlements, (2) the alienation of pension benefits, (3) plan benefit distributions, and (4) qualified domestic relations orders. The basis for much of this blurring would vanish if the U. S. Department of Labor ("the DOL"), and the U. S. Treasury ("the Treasury") affirmed their pre-Kennedy approach to many of these issues. Employee benefit practices may be improved if the DOL, the Treasury, plan sponsors, plan administrators, and representatives of plan participants and potential plan beneficiaries follow the suggestions set forth.
ERISA, survivor, claim, marital, Supreme Court, QDRO, divorce, retirement benefits, benefit designations, life insurance, pension, employee benefit
Abstract: The Federal Circuits have generally held that ERISA prohibits waivers of claims to vested pension benefits. The D.C. Circuit prohibits waivers of vesting rights. The Seventh Circuit prohibits waivers of vested pension benefits, but allows individuals to settle non-pension disputes by choosing settlement payments which may not have the most favorable associated pension plan benefits. The Second Circuit also prohibits the waiver of vested benefits but has found that waivers of the right to participate in pension plans may be effective. Nevertheless, a number of Second Circuit district courts have permitted the waiver of vested pension benefits. The Fifth Circuit upheld a waiver of vested pension benefits in an employment termination agreement when the agreement addressed a bona fide pension dispute but not one which was part of a general release in a severance agreement. Each Circuit looks beyond the face of the waiver of pension benefits for those limited waivers that each permits to verify that those waivers were knowing and voluntary.
pensions, releases, settlements, employment, agreements
Abstract: In Kennedy v. Plan Administrator of the DuPont Savings and Investment Plan (the “Kennedy Decision”), a unanimous Supreme Court appeared to proclaim a “bright-line rule” that plan documents determine benefit distribution rights. However, by misreading ERISA and its own precedents, the Supreme Court needlessly undermined basic ERISA principles with respect to the determination and the protection of ERISA benefit entitlements, the coverage of the prohibition on the alienation of pension benefits (the “Alienation Prohibition”) and the rules pertaining to QDROs. The Court thereby laid the groundwork for considerable benefit litigation, much of which could have been avoided, focusing on issues such as • the effectiveness of benefit waivers (including, but not limited to, disclaimers) that are not QDROs for the many ERISA plans that have no disclaimer provisions; • the effect on benefit entitlements of various disclaimer provisions in the governing documents of ERISA plans; • the requirements for a domestic relations order (“DRO”) to be a QDRO; • the effect on benefit entitlements of ERISA plans not subject to the Alienation Prohibition, such as a life insurance plan or a top-hat plan, of a DRO that “satisfies” the QDRO requirements; • the effects of revocation upon divorce provisions for pension plans subject to the Alienation Prohibition; and • the effect of ERISA on the determination and protection of entitlements to distributed ERISA benefits. Much of this litigation would be tamped down if the Treasury Department amended the Treasury Regulations to clarify (1) the significance of the Alienation Prohibition, such as its applicability to disclaimers, waivers and levies, and (2) the significance of the QDRO requirements. The article proposes draft regulatory language to achieve those goals.
Abstract: In Kennedy v. DuPont Savings and Investment Plan (the "DuPont Plan"), 2009 U.S. LEXIS 869 (January 26, 2009), the Supreme Court decided that if a voluntary disclaimer in a domestic relations order ("DRO") by the divorcing spouse of an ERISA pension plan participant did not comply with the terms of the governing plan documents, the plan could pay the death benefit only to the participant's designee, who was the former spouse and disclaimant. The Court agreed with the former spouse that her disclaimer was ineffective. Thus, the plan administrator correctly denied the claim of the participant's default designee. The decision raises at least seven troubling questions for family law practitioners, ERISA practitioners, ERISA plan sponsors, administrators, participants and administrators. 1) May Pension Plans Defer to Disclaimers by Separating or Divorcing Spouses? 2) May Pension Plans Defer to Divorcing and Separating Spouses Who Seek to Retain Survivor Benefits? 3) May a Pension Plan Be Obligated to Make a Double Benefit Payment Following a Divorce or Marital Separation? 4) Must Pension and Life Insurance Plan Administrators Defer to Disclaimers by Separating or Divorcing Spouses if the Plans Do Not Otherwise Permit Disclaimers by Such Individuals? 5) If Pension and Life Insurance Plan Administrators May Not Defer to Disclaimers by Separating or Divorcing Spouses, May the Participant's Default Designee Use State Law to Obtain the Benefit from the Disclaimant? 6) Must Pension Plan Administrators Defer to QDROs Or Any Other ERISA Requirements if the Plan Documents Do Not Provide for such Deference? 7) Does ERISA Permit Benefit Claims by Participants and Beneficiaries in Plans, Such as Top-Hat Plans, Which are not Subject to the General Fiduciary Rules? Many of these issues are discussed more extensively in "Will the Supreme Court Reinforce or Undermine Basic ERISA Principles When it Decides a Death Benefit Dispute," 3 Charleston L. Rev. 289 ( 2009), prepared before the decision which is available at http://ssrn.com/abstract=1337276.
ERISA, survivor, benefit claim, marital, Supreme Court, QDRO, divorce, retirement benefits, benefit designations, life insurance, pension
Abstract: This Article argues that if the plan criteria for benefit designations and revocations for an ERISA plan do not provide for compliance with a domestic relations order, such an order may not determine the disposition of ERISA plan benefits. ERISA thus voids any benefit claim based on a domestic relations order that does not satisfy the plan criteria, whether the claim is made against the plan or the participant's designee under the plan's criteria. ERISA gives pension plans subject to the ERISA anti-alienation rules no discretion. Such plans' criteria for benefit designations and revocations must require compliance with domestic relations orders that are qualified domestic relations orders (QDROs) and must prohibit compliance with domestic relations orders that are not QDROs. A waiver in a domestic relations order by a former spouse of an interest the participant's benefits in such a plan thus may not be enforced against the plan or against the former spouse. The Supreme Court will decide this term whether it accepts this conclusion. An agreement by a participant in a domestic relations order to make or retain a beneficiary designation in such a plan (such agreements are not QDROs, because QDROs are orders directed at ERISA plans not at participants) thus may not be enforced against either (1) the participant's designee under the plan's criteria; or (2) the plan. ERISA gives life insurance plans and pension plans not subject to the ERISA anti-alienation rules, such as top-hat plans, discretion. Such plans' criteria for benefit designations and revocations may but need not require compliance with some or all domestic relations orders. Provisions requiring such compliance are rare, but when present they most often provide that a participant's former spouse will not be treated as a designee following the participant's divorce unless the participant redesignates the former spouse after the divorce. If such a plan's criteria for benefit designations and revocations do not require compliance with a domestic relations order, whether by reason of an explicit exclusion or absence of a provision for such compliance, such orders may not determine the disposition of the plan's benefits. Thus, benefit claims based on such orders may not be enforced against (1) the participant's designee under the plan's criteria; or (2) the plan.
ERISA, Pension, Retirement, Life Insurance, Top-Hat Plans, Divorce, Domestic Relations,Benefits, Beneficiaries
Abstract: In Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, (argued Oct. 7, 2008) (No. 07-636) the Supreme Court will decide whether a participant's divorcing spouse may waive her entitlement to the participant's death benefit without using a Qualified Domestic Relations Order (QDRO). This article was prepared before the Supreme Court decision in Kennedy v. DuPont Savings and Investment Plan, 2009 U.S. LEXIS 869 (January 26, 2009). My brief commentary on such decision entitled A Unanimous ERISA Decision by the Supreme Court Raises Troubling Questions, appears at http://ssrn.com/abstract=1336350. ERISA addresses benefit disputes between two persons claiming to be a beneficiary. Plan terms determine who has the entitlement. Where the plan terms do not permit a waiver such as the one at issue, the waiver is not effective. Furthermore, the statutory prohibition against the alienation of benefits requires that pension plan terms permit QDROs to determine benefit entitlements, but prohibits them from using a domestic relations order other than a QDRO, such as the one at issue, to determine benefit entitlements. Thus, pension plans must disregard settlements between the parties, whether or not incorporated in court orders or voluntary agreements, except to the extent the settlement is part of a QDRO. Finally, the article suggested it would be useful for the Supreme Court to reaffirm in this decision the Court's consistent holdings that ERISA protects the right both to receive and to keep employee benefits. Thus, no one may force a person entitled to an ERISA plan benefit to pay another the amount of the benefit, unless the plan authorizes such payment. Such authorization may exist if the plan, unlike most pension and life insurance plans, permits the assignment of benefits. There may be such authorization if a plan, unlike most pension and life insurance plans, permits the assignment of benefits. This protection applies to all ERISA plans, both pension and welfare plans, and to all plan participants and beneficiaries, whether they are rich, poor, deserving, or greedy.
Abstract: Part I of this Article proposes that ERISA severely limits the ability of individuals to release their claims to ERISA plan benefit entitlements. The ERISA prohibition of any agreement purporting to relieve fiduciaries of their duties voids any attempt to release claims to any ERISA benefit entitlements. The ERISA spendthrift prohibition on the assignment or alienation of pension benefits voids any release of such a plan or its fiduciaries from a claim that an individual is entitled to accrued benefits under such plan. This does not preclude settlements of pension benefit claims disputes. However, only judicially approved settlements are binding. The ERISA fiduciary-duty provisions void any release from claims that an individual is entitled to ERISA plan benefits, which is not otherwise voided unless, when the individual executed the purported release: (a) he or she voluntarily agreed to release the plan and fiduciaries from the claim at issue; (b) he or she fully understood what a prudent fiduciary would have known about the released rights; and (c) he or she received fair and reasonable consideration for such release. Thus, a court reviewing the effectiveness of a release must generally review the individual's underlying benefit claim. Therefore, fair settlements of bona fide ERISA claims disputes will be approved. However, releases which do not specify the benefits claim at issue, such as general releases in employee termination agreements do not generally affect such ERISA claims.
ERISA, releases, waivers, employee benefits, general releases, employment releases, fiduciary, fiduciary releases
Abstract: In Metropolitan Life v. Drainville, 2009 U.S. Dist. LEXIS 63613 (DC R.I. July 23, 2009), a federal district court in Rhode Island recently explained the requirements that a domestic relations order ("DRO") must satisfy to be a qualified domestic relation order (“QDRO”). The court held an ERISA life insurance plan must treat a divorce decree which required a participant to keep his first wife’s children as his beneficiaries as having gone into effect. The dispute arose because at the time of his death, the participant had not followed the terms of the decree, and his second wife was then his sole beneficiary. The Drainville court correctly concluded in a well-reasoned manner that (1) strict compliance with the QDRO disclosure requirements is not required, but substantial compliance is adequate; (2) an agreement that is merged or incorporated into a divorce decree may be a QDRO; and (3) a DRO may be a QDRO even if the plan administrator does not determine that it is a QDRO. The Drainville court, like many other courts, incorrectly disregarded the fact that the QDRO requirements, including the requirement that ERISA plans follow the designations of such an order, are applicable only to pension plans. Thus, the court should have (1) directed the life insurance plan to disregard the DRO at issue, and (2) held that the participant’s designee, his second wife, was entitled to his benefits.
ERISA, survivor, claim, marital, QDRO, divorce, retirement benefits, benefit designations, life insurance, pension, employee benefit
Abstract: Part II of this Article discusses how courts have determined the effectiveness of a release of an individual's claim to a benefit entitlement under an ERISA plan after summarizing the proposed analysis presented in Part I. Most courts have applied contract principles, supplemented at times by special scrutiny. The courts have rarely considered whether the ERISA prohibition of any agreement purporting to relieve fiduciaries of their duties requires plan fiduciaries to disregard any agreement purporting to release claims to any ERISA benefit entitlements. Few courts have considered the applicability of fiduciary principles to the determination of the effectiveness of a release of such claims. Nor have many courts considered whether the ERISA spendthrift prohibition on the assignment or alienation of pension benefits voids any release of such a plan or its fiduciaries from a claim that an individual is entitled to accrued benefits under such plan. The article considers how the fiduciary release principles and the analysis proposed in Part I would change some but not all of the court decisions. There is also a discussion of how most but not all courts have held that releases which do not specifically describe both the released party and the released claim are generally void. The first article argued that such releases are generally void. Thus, the article concludes that individuals have been wrongfully deprived of pension and welfare benefits to which they are entitled.
Abstract: The filings in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 497 F.3d 426 (5th Cir. 2007), cert. granted, 2008 U.S. LEXIS 1291 (U.S. Feb. 19, 2008) are complete, and oral argument is scheduled for October 7, 2008.
The case, which is a dispute about who is entitled to a participant's death benefits, has many curious elements. In my view, neither party addresses the certified question which refers to the entitlements of an ERISA beneficiary rather than the payment obligations of an ERISA plan administrator. The AARP amicus brief suggests that ERISA should no longer protect entitlements to retirement benefits after their distribution. Under the approach of the amicus brief of the United States, that the Department of Treasury, the Internal Revenue Service, and the Department of Labor presented, for which the Solicitor General was the counsel of record, divorcing spouses may not retain spousal survivor benefits with qualified domestic relations orders ("QDROs"), even though Congress introduced QDROs for this very purpose, because the United States approach limits QDROs to orders that transfer benefit rights and no right is transferred if rights are retained.
The result may be a Supreme Court decision or dicta that substantially change basic ERISA provisions with respect to benefit entitlements, benefit designations, the alienation prohibition and QDROs
ERISA, survivor, claim, marital, Supreme Court, QDRO, divorce, retirement benefits, benefit designations
Abstract: Kennedy v. DuPont Savings Plan Administrator, No. 07-636 has become even more confused. The estate of a participant (William Kennedy denoted as William) claimed to be entitled to receive William's death benefit on the ground that the designated beneficiary and his former spouse (Liv Kennedy) had waived her right to receive the benefit thereby entitling William's estate, as contingent beneficiary, to that benefit. The waiver was part of a domestic relations order that was not a QDRO. After hearing the oral argument the Supreme Court requested and received confusing supplemental briefs that were supposed to discuss in effect the question whether the waiver could be effective if the death benefits came from a life insurance plan, which is not subject to the prohibition on the alienation of benefits that is applicable to the death benefit from the pension plan at issue. The Supreme Court may still be able to discern three ERISA core principles from all the briefs that have been filed in this case and from the oral argument. First, ERISA benefit entitlements are determined by Plan terms. Second, ERISA protects benefit entitlement after the plan has paid the benefits. Third, the QDRO Provisions apply to all DROs pertaining to pension plans. The Court may reinforce each principle by using them explicitly in a decision on behalf of the Plan administrator.
ERISA, survivor, claim, marital, Supreme Court, QDRO, divorce, retirement benefits, benefit designations, life insurance, pension
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