Kennedy v. Plan Administrator for
DuPont Savings and Investment Plan,
(No. 07-636, Decided January 26, 2009)
In a court battle that had been ongoing since 2001, Kari Kennedy lost a $402,000 inheritance because the beneficiary form did not name her as the beneficiary, even though that is what her father wanted. The United States Supreme Court UNANIMOUSLY ruled that the ex-spouse receives the retirement plan money because she was named on the beneficiary form-even though she waived her rights to that money in a divorce decree.
“My father expressly did not want my mother to have another red cent after their divorce was final. There’s no doubt in my mind that he wanted me to have everything he had.” – Kari Kennedy
The high court ruled that a company plan must pay the beneficiary named on the beneficiary form, even in light of contradictory signed agreements. The Supreme Court ruling is the law of the land and there are no more appeals on this. The beneficiary form controls who inherits the money and all of the Justices agree.
Facts of the Case
William Kennedy died in 2001, three years after he retired from E.I. DuPont de Nemours & Company. He had worked 34 years for the company where he contributed to the company plan (a Savings and Investment Plan – an ERISA qualified plan). He married Liv Kennedy in 1971 and in 1974 he signed a beneficiary form naming her as the beneficiary of the SIP. There was no contingent beneficiary named on this form.
William and Liv divorced in 1994. Under the divorce decree, Liv waived her rights to any benefits under his retirement plans. He wanted this plan balance of $402,000 to go to his daughter, Kari Kennedy, but he never changed the beneficiary form on this plan. He did change it on another plan, but not on this one.
After William’s death, Kari, as the executrix of his estate, asked DuPont to distribute the balance in the SIP to William’s estate since Liv had waived her rights to this money and there was no named beneficiary on the plan. DuPont, going by the terms of the SIP and the beneficiary form on file, instead paid the proceeds out to Liv, disregarding the waiver in the divorce decree. Liv Kennedy died in 2007, but that did not change the result.
The Court Proceedings
The estate then sued DuPont and the plan administrator for the funds. They made the claim that the divorce decree was a waiver of the SIP benefits and that it was a violation of ERISA rules to distribute the funds to Liv. The District Court agreed with the estate. DuPont appealed this decision. The Fifth Circuit Court reversed the District Court decision saying the waiver was not valid since it was not a QDRO (qualified domestic relations order).
Supreme Court Justice Souter stated that the case was heard in order to decide who is entitled to the inheritance where the divorce decree is “inconsistent with the plan documents.”
The Supreme Court Decision
The justices unanimously ruled that the daughter gets nothing. They reached the same decision as the Fifth Circuit Court, only their decision is based on compliance with the written plan agreement rather than on the waiver issue. This is a major distinction. The Supreme Court said you have to look at the terms of the plan and pay out the death distribution accordingly. The person named on the beneficiary form gets the money.
From the Court:
“Under the terms of the SIP Liv was William’s designated beneficiary. The plan provided an easy way for William to change the designation, but for whatever reason he did not. The plan provided a way to disclaim an interest in the SIP account, but Liv did not purport to follow it. The plan administrator therefore did exactly what §1104(a)(1)(D) required: ‘the documents control, and those name (the ex-wife).’”
The DuPont SIP plan allows a beneficiary to disclaim plan benefits (not all plans will accept a disclaimer). Liv could have disclaimed the SIP plan within nine months of William’s death and the assets would have gone to his estate since there was no contingent beneficiary. This would have effectively corrected the situation. But, she did not do this.
In footnote 10 of the case, the Court did leave open the option that after the funds were distributed to the ex-spouse, there could be a case against her to recover the funds based on her prior contractual agreement (the divorce decree). In part, the footnote states that “the consensual terms of a prior contractual agreement may prevent the named beneficiary from retaining those proceeds.” Once the funds were distributed from the plan, they were “no longer entitled to ERISA protection.” But that is another story for another day. The bottom line is that the ex-wife gets the money because she was named on the plan beneficiary form.