Legal & Legislative Reporter: Distribution of 401(k) Benefits to Ex-Husband

Every month, the International Foundation releases the Legal and Legislative Reporter, a compilation of new employee benefits-related case summaries. Below is a summary we thought you’d be interested in. Content provided by Morgan, Lewis & Bockius LLP.

No Abuse of Discretion in Distribution of 401(k) Benefits to Ex-Husband

The U.S. Court of Appeals for the Eighth Circuit affirms the district court’s summary judgment award in favor of the defendant employer related to the award of 401(k) benefits to a former employee’s ex-husband.

The plaintiff is the personal representative of the estate of a former employee who was a participant in her employer’s 401(k) plan. The defendants include the ex-husband of the former employee and the employer. The plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA).

While employed, the former employee made contributions to the plan. She originally designated the defendant ex-husband as the sole beneficiary in the event of her death. The former employee and the defendant divorced in 2002. Their divorce agreement provided that the former employee was awarded her entire plan account.

In 2008, the former employee attempted to change the beneficiary form to remove her ex-husband. She submitted a change in beneficiary form to the defendant employer, allocating one-third of her plan account to each of her three siblings. The defendant employer rejected the updated beneficiary form because the plan documents required all beneficiary allocations to be made in whole percentages. The employer notified the former employee of the rejection and sent eleven annual statements to the former employee showing the ex-husband as the current beneficiary. The former employee never filed a corrected beneficiary designation form.

When the former employee died in 2019, she had almost $600,000 in her plan account. The defendant employer paid the plan benefits to the defendant ex-husband. The plaintiff estate sued the employer for breach of fiduciary duty. The district court granted summary judgment to the defendant employer, finding that it did not breach any fiduciary duty because it complied with ERISA’s plan documents rule. The estate appealed. The court reviews the district court’s grant of summary judgment de novo.

The court notes that discretion is the benchmark for fiduciary status under ERISA. Where an ERISA plan gives an administrator discretionary authority to determine eligibility for benefits, a district court will ordinarily review the administrator’s decision for abuse of discretion. While the plan grants to the employer as plan administrator full discretionary authority and power to control and manage all aspects of the plan, determine eligibility for plan benefits, interpret and construe the terms and provisions of the plan, determine questions of fact and law, direct distributions and adopt rules for the administration of the plan as it deems appropriate, that does not mean that the administrator is granted the discretion to accept designations that fail to comply with the beneficiary designation forms.

The court also notes that even if the plan gave the administrator discretion to accept the former employee’s defective beneficiary designation form, it is not an abuse of discretion to act in accordance with the plan documents. ERISA specifically directs administrators to discharge their duties in accordance with the documents and instruments governing the plan.

Here, the plan established a uniform administrative scheme with a set of standard procedures for designating beneficiaries. The court finds that the defendant employer acting as the plan administrator did not abuse its discretion by acting in accordance with plan documents and rejecting the defective change in beneficiary form.

The court also finds that the employer did not abuse its discretion by distributing plan benefits to the ex-husband. When the former employee died, the only valid beneficiary designation was the one naming the ex-husband as beneficiary. Therefore, the defendant employer did not abuse its discretion by following the plan’s instructions to distribute benefits in accordance with that designation. Consequently, because the employer followed the plan documents in rejecting the defective change in beneficiary form and distributing benefits, the plaintiff’s breach of fiduciary duty claim fails. The district court properly granted summary judgment in favor of the defendant employer.

Accordingly, the court affirms the district court’s judgment.

Gelschus v. Hogan et al., No. 21-3453 (8th Cir., August 29, 2022).

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