Waivers of ERISA plan benefits: preventing judicial interpretations of a complex statute from frustrating the statute's simple purpose.

AuthorGorris, Jeffrey M.


A woman has just lost her husband. Among the many other things on her mind, she is worried about her financial security. She has just retired, and her recently deceased husband was two years from retirement. They had planned to fund their retirement through his money purchase pension plan. (1) She contacts his pension plan administrator to receive the death benefit payable upon her husband's passing. The plan administrator informs her that the pension plan documents show that the beneficiary is not her, but rather her husband's ex-wife. The surviving spouse informs the plan administrator that the ex-wife waived her right to the pension plan many years ago in a divorce agreement with her then-husband. Who receives the pension money? (2)

The answer to this question is the subject of a long-lived circuit split in the federal courts. (3) At issue is "whether administrators of an ERISA plan are required to recognize a beneficiary's waiver of his or her benefits." (4) The issue has been addressed in numerous federal appellate decisions over the last fifteen years. The majority view, known as the "federal common law approach," holds that beneficiaries may effectively waive their rights to the benefits of an ERISA plan if the waiver meets certain criteria determined under federal common law. (5) The "minority rule," by contrast, contends that beneficiaries may not waive their rights to the benefits of an ERISA plan, and that the plan administrator therefore must pay the beneficiary listed in the plan documents. (6)

This Comment argues that the federal common law approach is the preferable rule to apply when evaluating waivers of benefits by ERISA plan beneficiaries. The federal common law approach better serves ERISA's equitable purpose of safeguarding employees' rights to their plan benefits while remaining consistent with ERISA's statutory language. Part I provides an overview of ERISA and its relevant provisions. Part II reviews the minority rule by examining the three primary arguments advocated by its proponents. Part III examines the federal common law approach and the decisions of the circuits that support it. Finally, Part IV discusses the reasons why the federal common law approach should govern waivers of ERISA plan benefits by nonparticipant beneficiaries.

  1. ERISA

    The Employee Retirement Income Security Act of 1974 (7) (ERISA) is the principal federal statute that regulates employee benefit plans. ERISA is a wide-reaching statute that covers most employee benefit plans (8) and affects a majority of the U.S. population. (9)

    1. Types of ERISA Plans

      There are two types of ERISA employee benefit plans: "employee welfare benefit plan[s]" (10) (welfare plans) and "employee pension benefit plan[s]" (11) (pension plans). Pension plans can be categorized further as either "defined contribution plan[s]" (also called "individual account plans") (12) or "defined benefit plan[s].' (13) Within this statutory structure, beneficiary waiver disputes most frequently arise in three contexts: employer-provided life insurance welfare plans, (14) defined benefit pension plans, (15) and money purchase pension plans. (16) Beneficiary waivers rarely arise in connection with 401 (k) plans because the ERISA provisions surrounding qualified preretirement survivor annuities (QPSAs) and qualified joint and survivor annuities (QJSAs) (17) have led most 401(k) plans to include a provision requiring that the employee's spouse receive the balance in the participant's account upon the participant's death, unless the spouse waives her rights in writing prior to the designation of an alternate beneficiary. (18) Because not all ERISA provisions apply to each plan type, it is critical to know the ERISA plan type when analyzing a beneficiary waiver claim.

    2. Purpose and Regulatory Scheme

      "ERISA is an intricate, comprehensive statute" (19) with dual purposes. (20) The first and primary purpose is "to promote the interests of employees and their beneficiaries in employee benefit plans." (21) The second purpose is to ensure "that ERISA plans be uniform in their interpretation and simple in their application." (22) The first purpose of ERISA can be regarded as protecting employees and the second as protecting employers. (23)

      ERISA pursues its objectives through a federal regulatory scheme of reporting and disclosure requirements (24) and fiduciary responsibility provisions (25) for all ERISA plans. Additionally, ERISA imposes participation, vesting, and funding requirements on pension plans. (26) In order to effect the administration and enforcement of ERISA's regulatory scheme in light of state regulation of retirement benefits, Congress added an expansive preemption clause, which states that ERISA "shall supersede any and all State laws insofar as they ... relate to any employee benefit plan." (27) The Supreme Court broadly interpreted this provision when it held that ERISA preempts state law that either "conflicts with the provisions of ERISA or operates to frustrate its objects." (28)

      This expansive preemption provision creates gaps where the state law addressing an issue is preempted, and ERISA does not itself contain specific rules on the issue. (29) Any gaps created by preemption are to be filled by a court-developed "federal common law of rights and obligations under ERISA-regulated plans." (30) All the courts that have addressed the issue agree that ERISA preempts state law in connection with beneficiary waivers. (31) The important question is whether ERISA specifically addresses beneficiary waivers, or if beneficiary waivers exist in one of the gaps created by preemption and should fall under the purview of federal common law. (32)

    3. ERISA Provisions Applicable to the Debate over Beneficiary Waivers

      ERISA has numerous provisions, (33) two of which are particularly relevant to waivers by beneficiaries: the fiduciary duties provision and the anti-alienation provision.

      1. Fiduciary Duties Provision

        ERISA's fiduciary duties provision, § 1104, details the responsibilities of a plan fiduciary--the plan administrator or trustee, for example--as he performs his duties. (34) Section 1104(a)(1) provides, in relevant part, that

        a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and--(A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan; ... and (D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with [ERISA]. (35) This provision, including the requirement that the plan administrator discharge his duties "in accordance with the [plan] documents," (36) applies to the plan administrator's distribution of the death benefit after the participant dies. (37) Because the plan administrator must determine the proper beneficiary, the validity of a beneficiary's waiver can become a contested issue in the death benefit distribution. (38)

      2. Anti-Alienation Provision

        ERISA also contains an anti-alienation, or "spendthrift," provision in § 1056(d). (39) The congressional policy behind this provision is "to safeguard a stream of income for pensioners ... and their dependents." (40) The provision requires "[e]ach pension plan [to] provide that benefits provided under the plan may not be assigned or alienated." (41) The stated exception to this provision condones only two types of transactions: (1) "any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment" (42) and (2) the "assignment ... of a right to any benefit payable with respect to a participant pursuant to ... a qualified domestic relations order," or QDRO. (43)

        The applicability of the anti-alienation provision often arises in connection with beneficiary waivers of ERISA pension plan benefits. The issue is whether a waiver is an "assignment or alienation," and thus only allowed if it satisfies one of the anti-alienation exceptions. (44) The first step in addressing this question is to define "assignment or alienation." Although the Supreme Court has not directly addressed the definition of these terms, it has referred to a regulation defining an "assignment or alienation" as "'[a]ny direct or indirect arrangement whereby a party acquires from a participant or beneficiary' an interest enforceable against a plan to 'all or any part of a plan benefit payment which is, or may become, payable to the participant or beneficiary." (45)


    The United States Courts of Appeals for the Second, Third, and Sixth Circuits support the minority rule--not giving effect to a waiver of ERISA plan benefits by a beneficiary and, instead, relying solely on the beneficiary designated on the participant's beneficiary form. (46) The minority view relies on three primary arguments: (1) the plan documents argument, (2) the efficiency and uniformity of administration argument, and (3) the anti-alienation argument. (47)

    1. The Plan Documents Argument: McMillan and Egelhoff

      The plan documents argument interprets ERISA's fiduciary duties provision, § 1104, as requiring plan administrators to pay the beneficiary listed on the beneficiary form without consulting any other documents to determine the correct beneficiary. (48) The first federal appellate court to endorse the minority rule based on the plan documents argument was the Sixth Circuit in McMillan v. Parrott. (49) McMillan is the paradigmatic beneficiary waiver case. Dr. Norman Parrott was a participant in "two vested ERISA [pension] plans." (50) At the time of his death, he was married to Claudia, who was his third wife. (51) However, the designated beneficiary on his ERISA plan documents was Barbara, his second wife. (52)

      Dr. Parrott had filed his beneficiary form four years prior to his death, while he was still married to Barbara. (53) Later that same...

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