October 2008 - Supreme Court Hears Issue of Ex-Spouse Waiver of Benefits in a Divorce

Family Law attorneys, have you ever drafted a Marital Settlement Agreement and included a provision allowing the nonemployee spouse of a retirement plan participant to waive his or her rights to their interest in the plan? Did you ever wonder whether that provision was in compliance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA")? The Supreme Court heard arguments on this question in October.

The Supreme Court heard the Fifth Circuit case Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, regarding an ex-spouse’s waiver of retirement benefits in divorce. Limiting the grant of certiorari to the third question presented, whether the Fifth Circuit was correct in concluding that ERISA’s Qualified Domestic Relations Order provision, 29 U.S.C. §1056(d)(3)(B)(i), is the only valid way a divorced spouse can waive her right to receive her ex-husband’s pension benefits under ERISA. Petitioner, the estate of the ex-husband, argues that the divorce decree validly waived the ex-wife’s right.

Although the Court was originally expected to hear the issue of whether a QDRO was the sole means for waiving benefits in a pension plan, the Court focused on the issue of the plan document rule, for which the federal appeals courts are divided. Under the plan document rule, fiduciaries to the plan are only required to look at the plan document, which includes the beneficiary designations, when determining how benefits are paid upon death. The issue then became whether the Court could decide the plan document issue, because they hadn’t granted certiorari on that issue. The Court decided that it could hear the issue if the parties were given an opportunity to provide supplemental briefing.

On October 28, 2008, the Court issued an order requesting supplemental briefing on the plan document issue. If the Court rules in favor of the plan document rule, pension plan administrators will only need to look as far as the beneficiary designation to determine who the beneficiary is.

During oral arguments, in addressing the issue of whether the waiver under the judgment of dissolution was a valid waiver of benefits, Justice Scalia pointed out that a QDRO is a form for the assignment or alienation of benefits and since this was a waiver of benefits and not an assignment or alienation, the QDRO exception does not apply and the waiver is valid. The parties in support of QDRO’s as the only form to waive benefits, or the plan document rule, argue that a decision to allow waivers in judgements or marital settlement agreements (i.e. non-qualified orders) would increase the burden on the plans. It has additionally been argued that these are private plans and the Court needs to make the administration easy so that company’s will provide these benefits to employees. If plan administrators have to interpret the language of judgments from different states, the administrative burden will be overwhelming and could lead to wrong interpretations and increased cost of legal counsel to determine validity of waivers for each state specific document and state laws.