EBIA Weekly reports on another divorce case–Keen v. Weaver, 2003 Tex. LEXIS 82 (June 19, 2003)–in which the participant designated the former spouse as the beneficiary prior to the divorce but then failed to change the designation afterwards. In this opinion, the Supreme Court of Texas affirmed the lower court’s decision to remove the former spouse as beneficiary, but it did so by applying “federal common law” and determining that the former spouse’s waiver of plan benefits under the divorce decree was enforceable under the federal common law of waiver. A dissent argued (in agreement with a DOL Amicus Brief filed in the case) that a federal common law of waiver should not be applied to the issue after the U.S. Supreme Court case of Egelhoff v. Egelhoff which held that ERISA preempts state statutes which operate to revoke a participant’s beneficiary designation in favor of a spouse.
Please see this previous post here discussing a case where QDRO procedures under the plan seemed to fix the problem. EBIA Weekly recommends to plan sponsors that they consider using the judicial procedure of interpleader when a participant fails to change the beneficiary designation card naming his or her spouse after a divorce and there is a conflicting claim. One might also consider including language in the plan and the QDRO procedures, such that, in the event the QDRO contains language divesting the alternate payee of all right and interest in the participant’s account under the plan or waiving such right and interest, that the plan administrator will interpret this language as voiding any beneficiary designation completed by the participant prior to the issuance of the order to the extent that the alternate payee is named as beneficiary.