As part of the give-and-take negotiation process involved with Marital Settlement Agreements, oftentimes one party will waive his or her right to the proceeds of the other party’s retirement plan assets. What happens, however, when the spouse retaining those assets dies before changing the former spouse as the retirement plan’s designated beneficiary?
While one might think that the assets then pass to the Estate of the deceased spouse, the answer is actually more complicated. In 2009, the Supreme Court of the United States in a case known as Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009), definitively held that the retirement plan administrator must, in accordance with the detailed statutory provisions of the Employee Retirement Income Security Act (“ERISA”) pay the asset proceeds to the designated beneficiary – in accordance with the plan documents. Thus, even if the former spouse waived her rights to the retirement assets as part of the divorce decree, she could still stand to receive those benefits should she remain the designated beneficiary in the plan documents. The Supreme Court even characterized the plan administrator as having done “its statutory ERISA duty by paying the benefits to [the ex-wife] in conformity with the plan documents.”
In such a situation what is the estate to do? Is it without remedy, no matter how unfair the outcome may seem? Actually, the Supreme Court left the question open as to an Estate’s avenue of remedy and, thankfully, the Third Circuit Court of Appeals recently addressed this issue of first impression in the precedential decision of Estate of William E. Kensinger, Jr. v. URL Pharma, Inc.; Adele Kensinger.