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Supreme Court Follows "Plan Documents" Rule in DuPont Decision

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February 6, 2009

On January 26, 2009, the United States Supreme Court unanimously ruled in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, that the ex-wife of a retirement plan participant, who was still named as the beneficiary at the time of the participant's death, was entitled to the benefits of the plan even though she had signed a domestic relations order waiving her interest in the plan's benefits as part of the divorce agreement. The Court followed the "plan documents" rule, which requires plan administrators to follow the express language of the plan documents in all but a few narrowly defined circumstances.

William and Liz Kennedy were married in 1971 while William was an employee of DuPont and a participant in its Savings and Investment Plan. William designated Liz as the sole beneficiary of his plan benefits in 1974. When William and Liz divorced in 1994, the divorce decree purported to divest Liz of any rights to William's pension or retirement benefits. William never executed any documents removing Liz as his plan beneficiary. When William died in 2001, his estate demanded the plan funds based on the domestic relations order. The DuPont plan administrator refused and disbursed the funds to Liz, in reliance on William's beneficiary designation form.

The Court determined that the plan administrator was not required to honor the divorce decree because it was required under ERISA to pay benefits to William's named beneficiary. Section 404(a)(1)(D) of ERISA provides that plan administrators must act in accordance with the documents and instruments governing the plan, including the beneficiary designation. The Court did note that the plan documents rule is not "absolute." In particular, administrators must follow the terms of a valid qualified domestic relations order (QDRO). However, the divorce decree in this matter was not a valid QDRO.

The DuPont decision reinforces several important rules for plan administrators and plan participants alike. Participants must be careful to promptly revise their beneficiary designations in the event they wish their benefits to be disbursed in a different manner. Plan administrators should ensure that they have the most current beneficiary designations on file for participants so that the properly-executed wishes of their participants can be followed. Finally, plan administrators should always follow the terms of the plan document. Strict compliance with the requirements of the plan establishes a "security blanket" for plan administrators who render decisions concerning benefits -- because a plaintiff's claim will stand or fall by the "terms of the plan."

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