The Supreme Court has ruled that ERISA preempts state laws that automatically
revoke spousal beneficiary designations after a divorce. The ruling applies
to all ERISA-covered plans, such as life insurance, retirement and most types
of executive deferred compensation plans.
Marriage, Divorce, Life Insurance and a 401(k) Plan
The facts of the case: During their marriage, David Egelhoff designated his
second wife as his beneficiary under an employer-sponsored life insurance plan
and a 401(k) plan. When the couple later divorced, their divorce decree granted
Egelhoff 100 percent of his Boeing 401(k) account, but made no mention of his
life insurance policy. Eight months later he died, leaving his children from
his first marriage as his statutory heirs. His second wife remained the designated
beneficiary under the life insurance policy and his 401(k) plan. Egelhoff's
children sued their father's ex-spouse, claiming that Washington state law had
revoked her designation as beneficiary after the divorce. The highest court
of the state upheld the state law, meaning that the children were entitled to
the life insurance proceeds and the 401(k) plan.
However, the Supreme Court reversed the state court, ruling that ERISA preempts
state laws that purport to revoke spousal beneficiary designations upon divorce.
In a brief filed with the Supreme Court, the Department of Labor had argued
in favor of preemption.
The Court reasoned that if ERISA did not preempt such state laws, plan administrators
would have to look beyond the terms of their plans to the laws of the 50 states
to determine beneficiary status. Thus, these state laws would interfere with
ERISA's goal of nationally uniform plan administration. The case is a victory
for employers, who are spared the time and expense of having to look to state
law in order to determine the proper beneficiary for payment of a death benefit.
Egelhoff should serve to increase awareness of the need to review death benefit
beneficiary designations after a divorce. Such designations should be modified,
if necessary, to reflect a participant's current intentions, as well as the
provisions of any property settlement agreements executed in connection with