By Todd Castleton
Another recent court dispute among would-be beneficiaries highlights the options facing retirement plan administrators when distributing a deceased participant’s benefit.
If two or more parties are claiming to be the rightful beneficiary of a deceased participant’s benefit, one option is to review all the facts and make a determination applying the plan’s terms through its claims procedures. The risk of this approach is that if the administrator makes a decision that is overturned on review by a court, the plan could end up paying twice.
A second option is for plan administrators to preemptively file an interpleader action. A plan can file an interpleader action as a plaintiff in a case, name the disputing beneficiaries as defendants, and then tender the benefit to the court and let the court resolve who is the rightful owner.
A recent case illustrates how choosing between these forums can mean drastic differences in determining who receives the benefit.
Background of the Case
The participant in Jenkins-Dyer v. Drayton, No. 2:13-CV-02489-JAR (D. Kan., Sept. 25, 2015), had earned retirement benefits under his employer’s ERISA-covered employee benefit plans. Seven days after his death, defendant Anita Drayton recorded a marriage certificate in Texas stating that she had married the participant approximately six weeks earlier. Both the participant’s daughter, Isoke Jenkins-Dyer, and Drayton filed a claims for the participant’s benefits from the company plans.
The company filed an interpleader action for some, but not all, of the participant’s benefits from the company-sponsored plans. For reasons that are not clear from the opinion, the interpleader action included the participant’s pension and disability plan benefits. In those cases, Drayton failed to file an answer or otherwise contest the ownership in that case, so the benefits were awarded to the participant’s daughter, Jenkins-Dyer.
For additional reasons not clear from the opinion, the participant’s benefit under the company’s savings plan was not included in the interpleader action. Under the terms of the company’s plan, if the participant dies without naming a beneficiary, the account would transfer first to the participant’s spouse, and if he did not have a spouse, to his children. The plan also provided that the participant’s spouse must consent to the designation of any beneficiary who was not the spouse. At the time of the participant’s death, neither the daughter nor the spouse were named on the most recent beneficiary designation filed with the plan administrator.
Dyer filed a claim for the savings plan benefit, and told the plan administrator that she believed that the marriage between Drayton and the participant was not valid. Nevertheless, the plan paid the benefit to Drayton, the participant’s purported spouse, and denied the daughter’s claim for the benefit. The daughter sued both the spouse and the plan administrator, claiming that she was entitled to the benefit because the marriage was invalid on four grounds.
In deciding the parties’ motion for summary judgment, the court first stated that only participants and beneficiaries have a right to bring a suit for benefits under ERISA. Because Dyer was not the designated beneficiary of the participant’s benefit, she could only prevail on a claim for benefits if she was designated under the terms of the plan. Dyer, as the participant’s only child, would be designated the beneficiary under the terms of the plan only if the participant was not married at the time of his death.
The court found that of the four grounds by which Dyer alleged that the marriage was invalid, only one was grounds for declaring a marriage invalid under Texas law (where the marriage was registered), namely her allegation that no marriage ceremony ever took place. After reviewing the evidence, which included an affidavit by a pastor and ordained minister that he performed the ceremony and a certified copy of the marriage certificate, the court found that Dyer had failed to advance any evidence that contradicted the other evidence presented.
No Arguments Contest Validity of Marriage
The court sorted through the Dyer’s arguments, but found none to be relevant to any legal grounds for her to contest the validity of the marriage. For example, one of the arguments advanced by Dyer was that the participant was too sick to participate in the marriage ceremony. But the court found that the participant’s health was not integral to the question of whether a marriage ceremony took place, and therefore did not create a genuine issue of fact that would require a trial to resolve. The court granted summary judgment, and entitlement to the plan benefits, to Drayton.
The case illustrates how difficult it can be to respond to a number of earnest claims from a person claiming to be a participant’s beneficiary. In the case of a dispute over the validity of a marriage, it may be necessary for a plan to do the same type of analysis the court did — hear and determine whether any of the arguments are valid grounds under state domestic relations law — or there is some risk that if the marriage wasn’t valid, the plan could have to pay the benefit twice.
Todd B. Castleton is senior counsel with Proskauer’s Employee Benefits, Executive Compensation & ERISA Litigation Practice Center in the firm’s Washington, D.C., office and is a contributing editor of the Guide to Assigning & Loaning Benefit Plan Money.