In a recent unanimous decision, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, the Supreme Court reversed the Fifth Circuit Court of Appeals and found that a plan administrator's payment of benefits to a former spouse of a participant in an ERISA retirement plan was proper, even though the former spouse waived her right to benefits in a divorce decree. Generally, one may not alienate or assign the right to benefits under ERISA except through a qualified domestic relations order (QDRO), and the divorce decree in Kennedy was not a QDRO. Regardless, the Court held that a beneficiary may waive their right to benefits in a state law divorce decree; however, that ultimately whether the former spouse is entitled to benefits must be decided according to the terms of the benefit plan itself.
In Kennedy, Kari Kennedy, the administrator of her father William's estate, sued to recover benefits paid to Liv Kennedy, the divorced wife of William, at his death. In 1974, William named Liv the beneficiary of his account under the employer-sponsored retirement plan. William did not name an alternate beneficiary. When Liv and William divorced in 1994, Liv, in the divorce decree, waived her rights to the benefits. However, after the divorce, William never removed Liv as his beneficiary under the plan (even though there were simple mechanisms to do so). Kari sued the plan administrator to recover the money paid out to Liv.
The Court considered two issues: first, whether an ex-spouse can waive the right to plan benefits in a state divorce decree, and second, whether a plan administrator must honor the waiver. When considering the first issue, the Court stated that ERISA was written with "an eye to spendthrift trusts," and drawing from the common law of trusts, held that a beneficiary may waive the right to a benefit, but that the waiver does not automatically assign that benefit to another. ERISA and federal tax provisions both support this result, and in an amicus brief, the IRS stated that when an individual waives rights and does not direct the waived benefit to another, no party automatically acquires a right or interest in that benefit. Second, even though the Court held that an individual may waive rights to a benefit under a state law divorce decree, the plan administrator must be guided by the plan documents when determining whether to honor the waiver. The Court reiterated ERISA's bright-line rule that plan administrators must follow the terms of the plan documents because allowing otherwise would burden administrators with potentially long and complex determinations before paying out benefits. In Kennedy, because the plan documents stated that the administrator was to pay benefits to the named beneficiary, and Liv was still the named beneficiary under the plan, the Court held that the plan administrator acted correctly by paying the benefits to Liv.
This case reiterates the bright-line rule that plan administrators should follow what the plan documents tell them to do when paying benefits. The decision does leave open the possibility for interpretation of other related issues, such as whether the estate could have sued the former wife to recover the benefits paid to her or what would happen if the waiver and the plan documents were consistent with one another. The decision also highlights the importance of clearly communicating the beneficiary designation process to plan participants and the consequences of failing to follow it.