Sixth Circuit Disregards Choice of Law Provision in Pension Plan To Decide Surviving Spouse Issue

If you like to follow ERISA cases, you won’t want to miss reading this interesting one here: Daimler-Chrysler v. Durden, 05-1662 (6th Cir., May 26, 2006). The case illustrates how the task of deciding who is the proper beneficiary of a pension, health or other benefit plan can sometimes be a tortuous process for the plan administrator as well as the courts. In this particular case, a participant named an individual (whom I will call “spouse #2″) as a beneficiary under the employer’s Pension Plan. After the participant’s death, another individual (“spouse #1″) appeared claiming that she was married to the participant and that her marriage to the participant had occurred prior to the alleged “marriage” of participant and spouse #2. Both spouses #1 and #2 claimed that they were the participant’s surviving spouse, entitled to benefits under the employer’s plans. There was quite a bit at stake, including a surviving spouse pension benefit, a life insurance benefit, and certain health care benefits.

The participant had named spouse #2 as beneficiary under the Pension Plan but had failed to list a beneficiary under the life insurance plan. Spouse #1 averred that the participant had never divorced her, and spouse #2 was unable to present any evidence that a divorce had occurred. The Pension Plan contained a typical choice of law provision which said that the Plan, in this case would be “construed, governed and administered in accordance with the laws of the State of Michigan except where otherwise required by Federal law.”

The lower court enforced the choice of law provision, and applied Michigan law in determing which marriage prevailed for purposes of identifying a surviving spouse under the Pension Plan, holding in favor of spouse #2. A divided Sixth Circuit reversed and applied Ohio law which was where the participant had lived during the existence of both relationships and where the participant was allegedly “married” to spouse #2. Holding in favor of spouse #1, the Sixth Circuit relied on the Restatement (Second) of Conflict of Laws, Section 187, in making its determination that it should disregard the choice of law provision contained in the Pension Plan.

Why was the choice of law so important in the case? Under Michigan law, there was a strong presumption of validity in favor of a later ceremonial marriage that was attacked on the ground that one of the parties was already married to another, and the presumption was particularly strong where there were children born of the later marriage. However, under Ohio law, Ohio placed the burden of proof on the second spouse to demonstrate that the first marriage was dissolved.

By the way, spouse #2 raised the ERISA preemption issue at the appellate level and the Sixth Circuit held that because the issue was never raised in the district court, it would not review the issue. However, the Sixth Circuit states in footnote 1:

Even if considered on the merits, Rita’s preemption claim would fail. ERISA provides that survivor’s benefits cannot be paid to someone named in a plan who is not a surviving spouse unless the surviving spouse has signed a written, notarized consent form. See 29 U.S.C. § 1055(a), (c)(2); Boggs v. Boggs, 520 U.S. 833, 843 (1997); Shields v. Reader’s Digest Ass’n, 331 F.3d 536, 542 (6th Cir 2003). There is no consent form in this case. Consequently, if Rita is not the surviving spouse, the Plan cannot effectively designate her as the beneficiary of survivor’s benefits. Therefore, the provisions of ERISA itself make it necessary to determine which claimant is the surviving spouse without reference to the Plan documents.

A dissent written by Circuit Judge Merritt calls the majority opinion’s analysis “convoluted”:

The Conflicts Restatement, relied on by my colleagues, does not take into account the overriding purpose and policy of uniformity behind the ERISA statute or behind the interpretation of ERISA benefits contracts. I, therefore, think that the Conflicts Restatement is of marginal value in the interpretation of this particular contract provision calling for the application of Michigan law. Moreover, the Conflicts Restatement provisions themselves are not entirely clear and are open to several interpretations leading to varying results in the resolution of this dispute. Instead of applying a uniform governing law to the ERISA benefits an employee and his family receive, the benefits will be distributed under the Court’s view according to a calculation based upon where the marriage occurred, marital domicile, etc. — a place that could be anywhere in the world for employees of a global automobile company. . . My colleague’s discussion of the various interests is interesting but I think overly complex and convoluted and seems to me to impair the explicit obligations concerning the governing law that the parties themselves wrote into their contract. Therefore, I would affirm the judgment of the district court.

(Who said ERISA cases are “dreary“?)

(Hat Tip: Decision of the Day, “Which Surviving Spouse Gets Bigamist’s Pension?)

Sixth Circuit Disregards Choice of Law Provision in Pension Plan To Decide Surviving Spouse Issue

If you like to follow ERISA cases, you won’t want to miss reading this interesting one here: Daimler-Chrysler v. Durden, 05-1662 (6th Cir., May 26, 2006). The case illustrates how the task of deciding who is the proper beneficiary of a pension, health or other benefit plan can sometimes be a tortuous process for the plan administrator as well as the courts. In this particular case, a participant named an individual (whom I will call “spouse #2″) as a beneficiary under the employer’s Pension Plan. After the participant’s death, another individual (“spouse #1″) appeared claiming that she was married to the participant and that her marriage to the participant had occurred prior to the alleged “marriage” of participant and spouse #2. Both spouses #1 and #2 claimed that they were the participant’s surviving spouse, entitled to benefits under the employer’s plans. There was quite a bit at stake, including a surviving spouse pension benefit, a life insurance benefit, and certain health care benefits.

The participant had named spouse #2 as beneficiary under the Pension Plan but had failed to list a beneficiary under the life insurance plan. Spouse #1 averred that the participant had never divorced her, and spouse #2 was unable to present any evidence that a divorce had occurred. The Pension Plan contained a typical choice of law provision which said that the Plan, in this case would be “construed, governed and administered in accordance with the laws of the State of Michigan except where otherwise required by Federal law.”

The lower court enforced the choice of law provision, and applied Michigan law in determing which marriage prevailed for purposes of identifying a surviving spouse under the Pension Plan, holding in favor of spouse #2. A divided Sixth Circuit reversed and applied Ohio law which was where the participant had lived during the existence of both relationships and where the participant was allegedly “married” to spouse #2. Holding in favor of spouse #1, the Sixth Circuit relied on the Restatement (Second) of Conflict of Laws, Section 187, in making its determination that it should disregard the choice of law provision contained in the Pension Plan.

Why was the choice of law so important in the case? Under Michigan law, there was a strong presumption of validity in favor of a later ceremonial marriage that was attacked on the ground that one of the parties was already married to another, and the presumption was particularly strong where there were children born of the later marriage. However, under Ohio law, Ohio placed the burden of proof on the second spouse to demonstrate that the first marriage was dissolved.

By the way, spouse #2 raised the ERISA preemption issue at the appellate level and the Sixth Circuit held that because the issue was never raised in the district court, it would not review the issue. However, the Sixth Circuit states in footnote 1:

Even if considered on the merits, Rita’s preemption claim would fail. ERISA provides that survivor’s benefits cannot be paid to someone named in a plan who is not a surviving spouse unless the surviving spouse has signed a written, notarized consent form. See 29 U.S.C. § 1055(a), (c)(2); Boggs v. Boggs, 520 U.S. 833, 843 (1997); Shields v. Reader’s Digest Ass’n, 331 F.3d 536, 542 (6th Cir 2003). There is no consent form in this case. Consequently, if Rita is not the surviving spouse, the Plan cannot effectively designate her as the beneficiary of survivor’s benefits. Therefore, the provisions of ERISA itself make it necessary to determine which claimant is the surviving spouse without reference to the Plan documents.

A dissent written by Circuit Judge Merritt calls the majority opinion’s analysis “convoluted”:

The Conflicts Restatement, relied on by my colleagues, does not take into account the overriding purpose and policy of uniformity behind the ERISA statute or behind the interpretation of ERISA benefits contracts. I, therefore, think that the Conflicts Restatement is of marginal value in the interpretation of this particular contract provision calling for the application of Michigan law. Moreover, the Conflicts Restatement provisions themselves are not entirely clear and are open to several interpretations leading to varying results in the resolution of this dispute. Instead of applying a uniform governing law to the ERISA benefits an employee and his family receive, the benefits will be distributed under the Court’s view according to a calculation based upon where the marriage occurred, marital domicile, etc. — a place that could be anywhere in the world for employees of a global automobile company. . . My colleague’s discussion of the various interests is interesting but I think overly complex and convoluted and seems to me to impair the explicit obligations concerning the governing law that the parties themselves wrote into their contract. Therefore, I would affirm the judgment of the district court.

(Who said ERISA cases are “dreary“?)

(Hat Tip: Decision of the Day, “Which Surviving Spouse Gets Bigamist’s Pension?)

Pepper . . . and Salt Cartoon Collection

The Wall Street Journal Cartoon Collection is now online at Baker Library here. The Collection was donated to the library by Charles Preston. Mr. Preston is the founder and editor of the cartoon feature in The Wall Street Journal, which has appeared in the paper under the heading “Pepper…and Salt” since June 6, 1950. Read about the Collection in this Wall Street Journal article here: “A Visit With Charles Preston, Pepper … and Salt’s Man for All Season(ing)s.”

(Check out the 1990′s cartoon (item 2) where the man is answering the phone and responds to the caller: “But I’ll certainly keep you in mind in case I ever take leave of my senses and decide to entrust all my savings to a complete stranger on the phone.”)

The Signing of TIPRA

Picture of the signing of TIPRA (H.R. 4297, Tax Increase Prevention and Reconciliation Act of 2005) last week here. (The pink suit just really makes the picture, doesn’t it? A lot of progress since this drab picture here.) Read more about the signing here.

More links:

The House Committee on Ways and Means online resource kit for TIPRA
Summary of TIPRA from the TaxBook
TaxProf Blog’s Links

Previous posts on TIPRA here.

<![CDATA[Prof Gives Chief Justice Roberts A+ for Opinion in the Sereboff Case]]>

Read Colleen Medill’s analysis of the recent U.S. Supreme Court opinion in Mid-Atlantic Medical Services v. Sereboff at the Workforce Prof Blog: “Sereboff and the Future of ERISA Remedies.” Colleen is a Professor at the University of Nebraska College of Law.

The Sereboff case was mentioned previously at Benefitsblog here.

<![CDATA[Prof Gives Chief Justice Roberts A+ for Opinion in the Sereboff Case]]>

Read Colleen Medill’s analysis of the recent U.S. Supreme Court opinion in Mid-Atlantic Medical Services v. Sereboff at the Workforce Prof Blog: “Sereboff and the Future of ERISA Remedies.” Colleen is a Professor at the University of Nebraska College of Law.

Article Providing In-House Counsel Focus on Code Section 409A

From Law.com: “Clean Up Deferred Compensation Arrangements With IRS ‘Formula’ 409A: What in-house counsel should do now to ensure compensation agreements don’t run afoul of Section 409A.”

Warshawsky's Comments on Proposed Pension Funding and Accounting Changes

Comments by Mark J. Warshawsky, Assistant Secretary for Economic Policy, Department of Treasury, at the European Institute’s Sovereign Funds Roundtable: “Reforms to U.S. Pension Funding and Accounting Rules: Their Potential Effect on Equity Values and Interest Rates.”

How TIPRA Will Affect Retirement Planning

An article on the topic from Robert Powell via MarketWatch.com:”Extended engagement: New tax law alters retirement-planning scenarios.”

Read about TIPRA here.

Cost of Retiree Health Benefits Looming for Public Employers

Very interesting article from USAToday.com: “Huge bill for public retirees hits soon.” Excerpt:

Retiree medical costs are the biggest long-term challenge that state and local governments face. By comparison, state and local pensions have an unfunded liability of about $500 billion.

State and local governments have set aside $2.5 trillion to help pay pension benefits for 19 million civil servants and 7 million retirees. But they have set aside almost nothing to pay for retiree medical benefits. . .

New accounting rules require that governments, starting next year, put a price tag on the value of medical benefits promised to civil servants when they retire. New York City’s liability, for example, approaches $50 billion. The city’s total budget last year was $53 billion.

“It’s no exaggeration to say that elected officials are shocked, absolutely shocked, by the size of these liabilities,” says Donald Rueckert Jr., senior vice president and actuary at Aon Consulting, an insurance broker.