On June 26, 2008, the U.S. Supreme Court issued a unanimous decision in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. The case had attracted significant attention because it dealt with the common situation that plan administrators face in having to deal with conflicting documents relating to a pension distribution to a divorced spouse. The Court held that plan administrators have a duty under ERISA to follow the language in the plan in distributing benefits and that a divorce decree can not supersede the plan’s terms.

William Kennedy had designated his wife, Liv, as the beneficiary of his interest in his employer’s pension and savings plans. When they divorced, Kennedy executed a new beneficiary form with respect to the pension plan (naming his daughter as the beneficiary), but he did not execute a new form for the savings plan. In their divorce decree, Liv waived her interest in the savings plan benefits. Upon William’s death, the savings plan administrator, relying on William’s unrevoked beneficiary designation, paid the savings plan benefits to Liv rather than to William’s estate.

The estate sued, alleging that the distribution to Liv violated ERISA. The District Court granted summary judgment for the estate. On appeal, the U.S. Court of Appeals for the 5th Circuit reversed the decision, holding that Liv’s waiver was an improper assignment or alienation of her benefits under ERISA and, therefore, could not be honored. The 5th Circuit stated that the divorce decree did not satisfy the requirements for a QDRO, which is the only exception to the anti-alienation rule.

With respect to the anti-alienation issue, the Supreme Court reversed and held that the divorce decree simply waiver Liv’s rights, but did not constitute an impermissable assignment or alienation. The Court went to hold, however, that the plan administrator is required under ERISA to follow the terms of the plan, not the divorce decree, with respect to the distribution of benefits. Because the DuPont plan included a specific procedure for changing a beneficiary, which William did not follow, the plan administrator properly distributed the benefit to Liv. The Court left open the question, however, of whether the benefit had to be returned in light of Liv’s valid waiver as to that benefit.

The result of this Supreme Court decision is that plan administrators should review the terms of their plans, SPDs and other communications to ensure that benefit distribution and beneficiary designation provisions are clear and unambiguous. Consideration should also be given to including language in SPDs and other communications that specifically states that divorce decrees that are not QDROs will not determine the disposition of benefits under the plan. This decision provides plan sponsors and plan administrators with a long awaited directive that they are not required to investigate the existence of other documents or other events in determining the manner in which benefits are to be distributed if the terms of the plan are clear and unambiguous.