All too often, a plan participant designates his or her spouse as the beneficiary (payee) of the death benefits available under the plan. The participant then divorces that spouse, but fails to change the beneficiary designation. If the participant later remarries and dies, who gets the death benefits? The Court faced this question in Metropolitan Life Insurance Company v. Cline, No. 07-36031 (9th Circuit 2010).
In this case, Raymond Cline had been married to Teresa Valentine. Through his former employer, Mr. Cline participated in two employee benefit plans, a life insurance plan and a 401(k) plan, both of which are subject to ERISA. The plan documents designated Ms. Valentine as being entitled to all death benefits. Ms. Valentine and Mr. Cline divorced in 2002. The divorce decree provided that Ms. Valentine would receive all of the death benefits from her husband’s insurance policies and half of her husband’s benefits under the 401(k) plan. A year later, Mr. Cline married Roxann Cline. Despite the provision in the divorce decree, Mr. Cline designated Ms. Cline as the beneficiary under the 401(k) plan. Mr. Cline subsequently died.
Who gets the benefits under the plans? The Court said that ERISA requires that a plan fiduciary administer an ERISA plan for the purpose of providing benefits to participants and their beneficiaries and in accordance with the documents and instruments governing the plan. An exception exists where a qualified domestic relations order (a “QDRO”) specifies a different beneficiary than the plan documents. Here, all of the proceeds from the life insurance plan are payable to Ms. Valentine, since she is the designated beneficiary of those proceeds under the plan document. Mr. Cline never changed that beneficiary designation. Similarly, the benefits under the 401(k) plan are payable to Ms. Cline, the beneficiary designated by Mr. Cline under that plan. In this case, the divorce decree does not qualify as a QDRO and thus does not alter the result.
The lesson for today: Keep your beneficiary designations current!