New question posed in ERISA case
The Supreme Court on Tuesday ordered lawyers to file new briefs by Nov. 10 on a new issue in a pending case testing a divorced spouse’s right to the other spouse’s pension benefits. The question was posed in Kennedy v. DuPont Savings Plan Administrator (07-636) — a case heard by the Justices on Oct. 7. The new question tests the application to the case of a part of federal benefit law that requires benefit plan administrators to operate the plan as dictated by plan documents — an issue that the Court appeared previously to have declined to hear. (A legal blog’s post discussing some of the Justices’ concerns, at oral argument, about not having granted review earlier of this issue can be read here.)
The Court had agreed on Feb. 19 to hear a single issue in the case — whether the Employment Retirement Income Security Act provided only one way for a waiver of the divorcing spouse’s right to the other’s pension — that is, a waiver would be found only if it had been made in a specific form of domestic relations order. That in turn posed an underlying question of whether a state divorce decree, in which a spouse had waived a right to the benefits, was a valid form of waiver of those benefits. The Fifth Circuit Court had ruled in favor of the spouse, Liv Kennedy of Houston, finding that the absence of a qualified domestic relations order meant that she was still entitled to the benefits as the sole beneficiary of the estate of her former husband, William Patrick Kennedy, a former DuPont Co. employee who died in 2001.
Kari Kennedy, administrator of her father’s estate, wrote to DuPont and demanded that the remaining balance in his pension plan be paid to the estate, claiming that Liv Kennedy’s beneficiary status was no longer valid under Texas family law. DuPont refused, and Liv Kennedy ultimately collected about $402,000. The estate then sued the administrator of the DuPont plan, claiming the benefits had been wrongly distributed. A District Court ruled in favor of the estate, but the Fifth Circuit reversed. Kari Kennedy and the estate then appealed to the Supreme Court, arguing that the Circuit Court was wrong in finding that a domestic relations order under ERISA was the only valid way for a divorcing spouse to waive the other’s pension payments. A split in the lower courts on that question probably led the Justices to grant review.
The Court granted review only of that specific issue on the proper way to waive benefit entitlement. The appeal had raised three other questions, one of which tested whether the plan documents of an ERISA pension plan governed distributions. Even so, both sides discussed the plan documents section of ERISA in their briefs, and the U.S. Solicitor General, joining in the case as an amicus taking a seemingly neutral stance, said that “consideration of the plan documents is critical in evaluating whether the court of appeals reached the correct result in this case.” The Solicitor General argued further: “ERISA requires a plan administrator to distribute benefits to the beneficiary designated by the participant under the terms of the plan. A waiver that is not given effect consistent with the provisions of the plan documents cannot trump the terms of the plan. Thus, the appropriate mechanism for eliminating the beneficiary interest of an ex-spouse is for the participant to change the beneficiary designation in accordance with plan terms. That process is generally not difficult. But in all events, the entry of a divorce decree purporting to waive the non-participant spouse’s interest is neither necessary nor sufficient to accomplish that end.”
On Tuesday, the Court posed this new question: “Whether 29 U.S.C. 1104(a)(1)(D), mandating administration of a plan in accordance with plan documents, required that the distribution in question be made to Liv Kennedy, even on the assumption that a waiver of her interest was not otherwise subject to statutory bar.”
The ERISA section at issue reads: “[A] fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and…in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and subchapter III of this chapter.”
Briefs by both sides are due by 2 p.m. on Nov. 10; amicus briefs are due at the same time.
In taking the case to the Supreme Court, the Kennedy estate had cited the very provision that the Court’s order on Tuesday listed, and argued that the Circuit Court was wrong in failing to consider the overall effect of Section 1104 of ERISA. The “prime directive” of ERISA, the petition contended, is “to protect the interests of participants and beneficiaries.” Enhancement of the convenience of plan administrators, the petition said, has always been only a secondary objective of the law. The appeal argued that courts should follow a common law approach, to ensure that plan funds are distributed for the benefit of family members who are actually entitled to them, and have not volutarily surrendered them.