Elder
Law FAX -- September 26, 2005
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Education |
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Court Denies Ex-Wife's Waiver of Pension Benefits
A federal appeals court has decided that a retiree could not change his
surviving spouse election even after she signed a waiver of benefits in
their divorce settlement.
James McGowan was employed by New Jersey Natural Gas Company from May 12, 1969, until his retirement on November 30, 1996. As of the date of his retirement, James was married to his second wife, Rosemary Byrne.
Shortly before his retirement, James elected to receive his retirement benefits in the form of an "automatic surviving spouse option," creating a 50% survivor annuity for Rosemary. This election remained in effect when he began receiving benefits in 1996.
James and Rosemary were divorced in Palm Beach County, Florida, on May 24, 1999. On July 23, 1998, prior to the formal entry of the divorce, they entered into a Marital Settlement Agreement, which was later incorporated into the final judgment of dissolution. The agreement stated that Rosemary "waives any and all rights, title, interest or claims . . . to all bank accounts, life insurance policies and any right to the New Jersey Gas Company Employee Pension Plan of the Husband."
Shortly after Rosemary signed this purported waiver, James contacted the Plan to change the named survivor beneficiary. On July 27, 1998, Rosemary signed a form consenting to the election of James' first wife, Shirley, as the replacement beneficiary.
In an August 6, 1998, letter, the Plan's benefits manager, Nancy Renner, informed James that the Plan did not permit changes to his prior contingent beneficiary election once he started receiving benefit payments.
Notwithstanding the Plan's denial of his initial request, James sought to change beneficiaries again after his marriage to his current wife, Donna, on November 3, 2001. New Jersey Natural Gas refused to recognize James' nomination of Donna as the new contingent beneficiary and maintained that Rosemary was still the beneficiary under the Plan.
James filed suit in the federal district court in New Jersey to get New Jersey Natural Gas to recognize Rosemary's waiver of benefits and his new election for his survivor. The court granted summary judgment for the plan saying it was not required to recognize the waiver.
On appeal to the federal Third Circuit Court of Appeals, Circuit Judge Franklin Van Antwerpen noted that there is a split within the federal circuit courts of appeal on the issue of whether administrators of plan under the Employee Retirement Income Security Act of 1974 (ERISA) are required to recognize a beneficiary's waiver of his or her benefits. The majority of circuits that have addressed this issue have held that such waivers are valid under certain circumstances.
Only two courts of appeals have disagreed, holding that plan administrators need not look beyond the documents on file with the plan to determine whether there has been a valid waiver effectuated in outside private documents.
Judge Antwerpen wrote that in the Third Circuit, the plan administrators' duty under ERISA, the federal law that governs how pension plans are administered for the protection of workers and retirees, is to run the plan "in accordance with the documents and instruments governing the plan."
The judge said that the plan administrators could not look beyond plan documents to determine if a spouse had waived his or her right to survivor benefits.
The court also held that ERISA's "anti-alienation" prohibition prevents Rosemary from waiving her right to her ex-husband's pension payment. The only effective way under ERISA to change the payee is by a "qualified domestic relations order" -- and it was agreed by the parties that the Florida state court order dissolving the marriage and incorporating Rosemary's waiver was not a "QDRO."
McGowan v. NJR Service Corp., September 13, 2005.
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