An unwelcome, or perhaps even dreaded, part of going into a new job is going through and filling out all of the administrative paperwork that it entails. This could be anything and everything from tax forms, to health care plan forms, to employment handbooks, contracts, and policy guides. All of these are, of course, important in their own way, but a case decided today by the Supreme Court (Kennedy v. Plan Admin. for DuPont Savings & Inv. Plan) illustrates how important it is to accurately select and update beneficiaries in benefit plans.
The case involved William Kennedy, a DuPont worker, who had participated in the company's "savings and investment" plan, which was an employee pension benefit plan covered by federal law. He was married in 1971, and a few years later designated his wife as the beneficiary of the plan. About 20 years later, the marriage ended in divorce, and under the terms of the divorce decree the ex-wife gave up her interest in any pension benefits plans. However, William did not update his selected plan beneficiary to remove his wife, perhaps thinking there was no need or maybe simply forgetting about it.
When William passed away in 2001, his daughter Kari Kennedy became the "executrix" (administrator) for his estate. She ran into a roadblock when she asked for the benefits from DuPont's plan administrator, because they simply relied on William's designation form and paid the balance (some $400,000) to his ex-wife. From the outside looking in, that seems like a pretty crazy result. The truth is, however, that this happens more often than people think. Administrators who handle these plans often find it much easier (and safer) to pay out by relying on clear-cut forms that were filled out by the employee, as opposed to digging around into people's complicated family relationships and histories.
To make matters worse, state and federal laws don't always work together smoothly in these situations. Even though William's ex-wife had given up, in writing, her interest in the benefits during the state court divorce proceedings, it was unclear whether federal law allowed her to do that without a "Qualified Domestic Relations Order". Even though the Court cleared it up today saying William's ex-wife was allowed to give up her right to receive benefits, the administrator's payment of benefits to her was still okay. The bottom line ended up being that the benefits administrator was allowed to rely on William's plan beneficiary designation to pay out the funds to her, no matter what she had waived elsewhere.
Although it's possible that William's daughter and the estate could end up recovering the funds despite this decision, it seems clear that anyone who participates in plans (or has policies requiring designation of beneficiaries) should make a schedule to check on their choices and keep them updated on a fairly regular basis in order to avoid any unintended results.