Here’s a hypothetical situation: A man participates in a retirement plan through his job and names his wife as beneficiary. They eventually divorce, and, as part of the settlement, the ex-wife waives all rights to the husband’s plan benefits. He, however, neglects to designate a new beneficiary before he dies. What should happen to the deceased’s plan benefits?

The Facts

In a similar real-life situation, the plan administrator distributed the benefits to the ex-wife, whereupon the man’s daughter sued the plan. The case eventually went to the Supreme Court,* which ruled 9 – 0 that the plan administrator had acted correctly based on the following:

• The plan document clearly spelled out procedures for designating and changing beneficiaries. So the deceased had the right and the opportunity to name a different beneficiary.

• The divorce decree was not a QDRO (qualified domestic relations order). So, even though the ex-wife had waived her rights to the benefits in the decree, it had no bearing on the plan document.

• A plan administrator is obligated by law to follow the terms of the plan document. In this case, that meant distributing the deceased’s benefits to the beneficiary on record: the ex-wife.

Plan sponsors and administrators would be wise to review the provisions in their plan documents that address divorce, QDROs, and default beneficiaries.

* Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, No. 07-636