E-Alert Case Updates

ERISA Preempts Plan Participant’s Attempt to Impose State Law Constructive Trust on Ex-Wife’s Vested Survivor Annuity Benefits

Vanderkam v. Vanderkam
No. 13-5163
(United States Court of Appeals for the District of Columbia Circuit, January 20, 2015)
by Colleen K. O’Brien, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at: http://www.cadc.uscourts.gov/internet/opinions.nsf/
56B4D7AE7504DAB185257DD3005468E5/$file/13-5163-1532797.pdf

In Vanderkam v. Vanderkam, No. 13-5163, 2015 WL 233686 (D.C. Cir. Jan. 20, 2015), the Court examined ERISA preemption in the context of an employer’s annuity pension plan. The Employee Retirement Income Security Act of 1974 (ERISA) entitles spouses of pension plan participants to a survivor annuity unless waived pursuant to clearly defined procedures. In this case, the pension plan participant argued that even though ERISA vested an annuity in his ex-wife, Texas law (including a Texas divorce decree), required that the trial court enter a declaratory judgment that after the participant’s death, the ex-wife’s survivor annuity payments be placed into a constructive trust for the benefit of the husband’s new spouse. The trial court rejected this claim, and held that ERISA preempted any state law or court decree that would otherwise defeat the spouse’s vested immunity. The appellate court affirmed.

By way of background, ERISA supersedes state laws that relate to employee welfare benefit plans. One exception to ERISA preemption rests on the fact that plan benefits are often considered marital community property, which is a domain traditionally reserved exclusively for state law, and therefore, qualified domestic relations orders (QDROs) are exempt from ERISA's anti-alienation and preemption provisions. A QDRO is a state-court decree regarding marital property that creates or recognizes an alternate payee’s right to ERISA-governed benefits. Despite the narrow QDRO exception, joint and survivor annuities for surviving spouses are still protected by ERISA and certain procedures must be adhered to in order to change the designated beneficiary. Without the spouse's written consent expressly acknowledging the effect of the waiver or new beneficiary designation, a participant can neither waive nor alter the survivor annuity in any way. Under the version of the statute governing this case, moreover, the written consent must not only be witnessed by a plan representative or notary public, but also completed no more than 90 days before the annuity start date, i.e., the date the participant either dies or retires. If a participant fails to obtain this written and witnessed waiver within the 90–day time limit, the survivor annuity vests in the spouse upon the participant's retirement or death.

In terms of the relevant facts, the plan participant designated his then-wife as the beneficiary of his employer’s qualified joint and survivor annuity. When the participant retired, the survivor annuity irrevocably vested in his spouse under ERISA. Eight years later the employee divorced his wife. The divorce decree awarded the husband all “benefits existing by reason of [his] past, present, or future employment.” One (1) year later, the employee remarried and sought to designate his new wife as the survivor annuity beneficiary. The husband motioned the Texas court to modify the divorce decree by including an order naming his new wife as the annuity beneficiary. The ex-wife opposed the motion, but the Texas court entered a QDRO divesting ex-wife of all ownership interests in husband’s retirement benefits, including the survivor annuity. Thereafter, the pension plan was assumed by a new statutory trustee who determined that the QDRO was invalid and that ex-wife remained the proper beneficiary of the survivor annuity.

The husband sued the pension trustee challenging its decision as arbitrary and capricious and contrary to ERISA. He also sued the ex-wife, and sought a declaration that given the divorce decree, ex-wife was required to hold the survivor benefits she received after husband’s death in a constructive trust for new wife’s benefit. The parties filed cross-motions for summary judgment, and the Court found in favor of the pension trustee and the ex-wife. The trial court determined that the pension trustee properly determined that the ex-wife’s claim to the survivor benefit irrevocably vested upon the husband’s retirement and that the Texas QDRO was invalid. Further, the state law claims against the ex-wife were preempted by ERISA.

The U.S. Court of Appeals for the District of Columbia Circuit affirmed the decision of the trial court. Significantly, and for reasons not clear in the case itself, the husband moved to dismiss the pension trustee from the appeal, and so the only issue on appeal was the trial court’s grant of summary judgment in favor of the ex-wife on the state law claims. Because the husband dismissed the pension trustee, he conceded that the survivor annuity vested in the ex-wife upon his retirement and that the Texas court order was not a valid QDRO. Given these concessions, the single issue on appeal was whether the husband could use state law to seize a benefit that federal law vested in the ex-wife.

The appellate court acknowledged that ERISA’s objective was to ensure ongoing financial support for surviving and divorced spouses. The husband argued that the divorce decree and the Texas statute, Tex. Fam. Code Ann. § 9.011(b), were not preempted by ERISA, and entitled husband to a declaration that he had “equitable title” to the ex-wife’s survivor benefit, and that upon her receipt of the annuity, she was bound by Texas law to deliver it to the husband’s designee, who was his new wife. The Court determined that the Texas statute was directly in conflict with ERISA and ERISA preempted the Texas law. Absent a QDRO and compliance with ERISA's strict waiver provisions for survivor annuities, a plan participant may not use a state law to end-around ERISA. The Court was clear that its opinion did not comment on how ERISA might affect an effort by a plan participant to use state law to obtain an interest in benefits after distribution to the beneficiary since this case only involved a pre-distribution situation. Accordingly, the judgment of the trial court was affirmed.