Court of Appeal upholds beneficiary designation

0

There are many cautionary tales about beneficiary designations and unintended consequences – here’s another one.

It appears Sally A. Hogen contributed to a 401(k) plan while employed at Honeywell International Inc. She originally named her husband (Clifford C. Hogen) as the sole beneficiary in the event of his death. Well, afterwards Sally and Clifford got divorced – and in the Marriage Breakdown Agreement (MTA) they agreed that “[Sally] will be awarded, free and clear of any claim on the part of [Clifford]all right, title and interest of the parties in the Honeywell 401(k) Ownership and Savings Plan”.

Several years later, Sally submitted a beneficiary change form to Honeywell. She awarded “33 1/3%” of the 401(k) benefits to each of her siblings. However, the instructions stated, “The allocation percentage must be a whole percentage” and since it did not use whole percentages, Honeywell did not change its designation. To their credit, Honeywell called Sally and left a message notifying her of the rejection and also sent 11 annual statements showing Clifford as the sole beneficiary. Until Sally died (2019) with nearly $600,000 in her 401(k) plan – at which point Honeywell paid the benefits to… Clifford, who of course was still listed as the beneficiary on the account.

Enter Robert F. Gelschus, as personal representative of Sally’s estate – who sued Honeywell for breach of fiduciary duty and Clifford for breach of contract, unjust enrichment, conversion and civil theft. The district court granted summary judgment to both Clifford and Honeywell, noting that Honeywell did not breach a fiduciary duty because it complied with ERISA’s “plan document rule.”[i].” As for Clifford, the district court determined that Gelschus lacked standing and, even if he did, his claims failed on the merits because there was no real dispute of fact as to whether Clifford had violated the MTA.

Gelschus appealed that decision – and the appellate court upheld summary judgment for Honeywell – but reversed summary judgment for Clifford on breach of contract and unjust enrichment claims.[ii]

The case presented to the United States Court of Appeals for the Eighth Circuit (Gelschus vs. Hogen8th Cir., n° 21-3453, 29/08/22) involved a dispute over whether the Honeywell 401(k) plan granted the plan administrator discretion over benefit eligibility – and although the plaintiff noted the plan’s statement that “…l The Plan Administrator has complete authority and discretion to control and administer all aspects of the Plan, determine eligibility for Plan benefits, interpret the terms and provisions of the Plan, determine questions of fact and law, direct distributions and adopt such plan administration rules as it deems appropriate…”, the Honeywell defendants stated that this discretion did not extend to the discretion to accept non-forms designations. specifically, the reference in the summary description of the plan to “complete and submit correctly…”

Additionally, they noted that “even if the plan gave the administrator discretion to accept Sally’s faulty form, it is not an abuse of discretion to act in accordance with the plan documents,” citing the example of a US Supreme Court case that upheld summary judgment for the plan administrator.

“When Sally passed away, the only valid designation named Clifford as the sole beneficiary. Honeywell did not abuse its discretion in following the Plan’s instructions to distribute benefits in accordance with this designation. Ultimately, the court ruled, “Because Honeywell followed the plan documents in rejecting Sally’s defective beneficiary change form and distributing the benefits, Gelschus’ claim for breach of fiduciary duty fails.” . The district court correctly granted summary judgment.

What does that mean

Know who your beneficiary is. And if you’re planning on changing your beneficiary, be sure to do so.


[i] Basically, by following the terms of the plan document.

[ii] Although not relevant to the subject matter of this message, the appeals court found that the claim was not preempted by ERISA, and that the question of whether the plaintiff had standing to sue (the district court found that he did not), “this court finds that, even if the MTA were ambiguous, a reasonable jury might conclude that Sally and Clifford intended the MTA to waive its interest beneficiary in the 401(k) The district court’s finding to the contrary is patently wrong.

Share.

About Author

Comments are closed.