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February 2, 2009

Supreme Court Says “Yes” To Beneficiary Designation Reliance

The United States Supreme Court has simplified the lives of ERISA plan administrators by giving credence to proper plan administration.

In Kennedy v. Plan Administrator For DuPont Savings and Investment Plan, et al., (No. 07-636) WL 160440 – U.S., (Jan. 26, 2009) an employee and his wife divorced. In the divorce decree, the wife waived her rights to the husband’s retirement benefits, but the husband never changed the beneficiary designation. The divorce decree did not qualify as a qualified domestic relations order. The Supreme Court did not require the plan administrator to ferret through other documentation to determine the validity of the beneficiary designation.

Pivotal to this decision is the requirement for a clear and well-communicated process of beneficiary designation. If a plan has a clear process that is communicated to employees, the plan administrator can rely on the beneficiary designation.

This decision puts to rest controversy among the Circuits and should give plan administrators some peace of mind when it comes to making planned distributions. Based on this decision, plans should review their beneficiary designation procedures to make sure that the process is well-documented and communicated to participants.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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