Kennedy v. Du Pont (Decision)

In this ERISA pension plan decision, the Court unanimously affirmed the Fifth Circuit and held that because no qualified domestic relations order (QDRO) was executed upon the Kennedy's divorce, which would have allowed the proceeds of Mr. Kennedy's pension account ($402,000) to go to his daughter (the "estate"), the ex-wife (Liv), the original beneficiary under the pension plan, would receive the money instead. The divorce decree had ordered the money to go to the daughter, but this action was never memorialized or taken care of at the pension plan level. The "bottom line," then, is that when the divorce is finalized, you need to execute your QDRO or else pension money may go to the person you don't want to have it. Let's give a few facts and the reasoning of the Court.

A Few Facts

"The Employee Retirement Income Security Act of 1974 (ERISA), as relevant here, obligates administrators to manage ERISA plans “in accordance with the documents and instruments governing” them, 29 U. S. C. §1104(a)(1)(D); requires covered pension benefit plans to “provide that benefits … may not be assigned or alienated,” §1056(d)(1); and exempts from this bar qualified domestic relations orders (QDROs), §1056(d)(3). The decedent, William Kennedy, participated in his employer’s savings and investment plan (SIP), with power both to designate a beneficiary to receive the funds upon his death and to replace or revoke that designation as prescribed by the plan administrator. Under the terms of the plan, if there is no surviving spouse or designated beneficiary at the time of death, distribution is made as directed by the estate’s executor or administrator. Upon their marriage, William designated Liv Kennedy his SIP beneficiary and named no contingent beneficiary. Their subsequent divorce decree divested Liv of her interest in the SIP benefits, but William did not execute a document removing Liv as the SIP beneficiary. On William’s death, petitioner Kari Kennedy, his daughter and the executrix of his Estate, asked for the SIP funds to be distributed to the Estate, but the plan administrator relied on William’s designation form and paid them to Liv. The Estate filed suit, alleging that Liv had waived her SIP benefits in the divorce and thus respondents, the employer and the SIP plan administrator (together, DuPont), had violated ERISA by paying her. As relevant here, the District Court entered summary judgment for the Estate, ordering DuPont to pay the benefits to the Estate. The Fifth Circuit reversed, holding that Liv’s waiver was an assignment or alienation of her interest to the Estate barred by §1056(d)(1)."

The crucial point in all this is the phrase, "but William did not execute a document removing Liv as the SIP beneficiary." What is the legal effect of that action, in view of the language in the divorce decree divesting Liv of the money?

Let's pause for a moment to reflect on this issue and one issue in life in general. In my judgment most legal cases, despite the complexities in which they are often dressed, really come down to very simple questions relating to an act that has been performed or neglected. The key to most of life is to know how to assess situations--whether they are texts, or people in conversation, or legal situations, or political realities. You need to learn how to assess what the crucial points of a gathering are, the crucial acts leading to liability are, etc. Then, once you hone in on them, hold onto these acts. Hold them up to the light. Stop and consider them in all their glory. Of course, the person who committed the act or omitted the duty might not have given the matter the same amount of attention as you, but the act or omission is worthy of examination nevertheless. Once you begin to see life in this way, you will be liberated as never before. You will develop an ability to get to the heart of a matter, any matter, and hold it up to light. Then, if you listen closely enough to life, if you experience a good deal of pain in your life and emerge from the pain intact, you will be given the gift of wisdom--to know how to assess the legal, political, moral or other significance of that important act or omission you have isolated. Once you can do these two things: isolate the crucial act or omission and then weigh its importance, you will have become quite useful in life. People will seek you out for advice. At first they will want to get all the "bennies" they can for free but, if you hold firm in most instances (you should give away some of your benefits free), you will be asked to help people who actually can pay you for your time. Then, life opens for you...

Well, excuse the digression, but it is an important point. Back to the case...

Holding and Reasoning

In this case the holding was said with stark simplicity:

"Because Liv did not attempt to direct her interest in the SIP benefits to the Estate or any other potential beneficiary, her waiver did not constitute an assignment or alienation rendered void under §1056(d)(1)."

I could go into an involved summary of the Court's reasoning, but the next sentence in the Syllabus says it all:

"Given the legal meaning of “assigned” and “alienated,” it is fair to say that Liv did not assign or alienate anything to William or to the Estate. The Fifth Circuit’s broad reading—that Liv’s waiver indirectly transferred her interest to the next possible beneficiary, here the Estate—is questionable."

As simple as that--fill out the right forms. Did we need a Supreme Court to tell us that?? Maybe so.

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