Jackson v. Parks, 2017 WL 4077006 (D. Mont. 2017)
This case arose following the death of an employee who had named his spouse as beneficiary under his employer’s life insurance plan. A year before his death, the employee and his spouse divorced, and, a few months later, the employee revised his will, leaving his entire estate to his children. When the employee died, the former spouse and the employee’s daughter each claimed the life insurance benefits. The daughter argued that the funds should be distributed to the estate in accordance with the employee’s will because of a state statute that revoked the former spouse’s interest in the funds upon divorce. The former spouse countered that ERISA preempts the state statute, making her, as the named beneficiary, the rightful recipient of the funds. The plan, faced with conflicting claims, asked the court to determine the proper payee.
Citing prior Ninth Circuit decisions, as well as the U.S. Supreme Court’s decisions in Egelhoff (see our Checkpoint article) and Kennedy (see our Checkpoint article), the court explained that ERISA preempts state laws relating to employee benefit plans and creates a “bright-line requirement” to follow the plan documents’ terms in distributing benefits. The court determined that the state law at issue here “related to” an ERISA plan in that it required the plan administrator to look to state law to determine the recipient of plan payments, rather than to the plan itself. The court concluded that the state law implicates an area of core ERISA concern by abrogating ERISA’s requirements that a plan must specify the basis on which payments are to be made, and that plan fiduciaries must make payments to beneficiaries designated by participants or by the terms of the plan. Accordingly, the court ruled that the state law was preempted and awarded the life insurance benefits to the former spouse.
EBIA Comment: Plan administrators must be alert to the risk of conflicting benefit claims. These claims raise the possibility of double-payment liability for any plan that disburses benefits, such as life insurance proceeds, without prior court approval. The judicial procedure called “interpleader,” which was used by the plan in this case, can protect a plan facing conflicting claims. In such an action, the plan brings the claimants before the court, and no payment is made except as ordered by the court. There are, of course, some costs associated with such actions, so, whenever a competing claim to benefits arises, a plan must evaluate its alternatives in consultation with experienced legal counsel. For more information, see EBIA’s ERISA Compliance manual at Section IX.L (“Competing Beneficiary Claims for Life, AD&D, and Similar Death Benefits”). See also EBIA’s 401(k) Plans manual at Sections XII.C.5.b (“State Beneficiary Designation Laws”) and XII.C.6 (“Using Interpleader to Protect Plan When There Are Conflicting Claims”).
Contributing Editors: EBIA Staff.