Strong v. Omaha Construction Industry Pension Plan , 270 Neb. 1 ( 2005 )

Connolly, L,

dissenting.

I join the portion of the majority opinion holding that this court has jurisdiction, as well as the portion holding that Nebraska courts need only treat lower federal court decisions as persuasive authority. I respectfully dissent, however, from the decision to adopt the waiver rule. In my view, the plan-documents rule is based on the correct interpretation of the language of ERISA and better serves the policies underlying ERISA.

Language of ERISA

As the majority opinion acknowledges, a court may resort to the federal common law to answer a question only when ERISA is silent on the issue. See, Mers v. Marriott Intern., 144 F.3d 1014 (7th Cir. 1998). Here, ERISA expressly states that fiduciaries, including plan administrators, must discharge their duties “in accordance with the documents and instruments governing the plan.” 29 U.S.C. § 1104(a)(1)(D). It is beyond question that one of a plan administrator’s duties is to determine who is entitled to receive a plan’s death benefit once an employee who belongs to the plan dies. See Egelhoff v. Egelhoff, 532 U.S. 141, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001). It necessarily follows that in carrying out their duty to determine who is entitled to receive benefits, plan administrators must examine the plan documents rather than turning to rules supplied by the federal common law. If, as here, the plan documents state that the beneficiary will be the person or persons that the employee designates in his or her last written notice, the written notice governs who the beneficiary will be. Extraneous attempts to waive the beneficiary interest are ineffective.

I recognize that a majority of courts has rejected this interpretation of 29 U.S.C. § 1104(a)(1)(D). Ordinarily, I might give this factor considerable weight in deciding which of two conflicting positions Nebraska should follow. But, not one of the courts in this majority has explained why the statutory analysis used by those courts adopting the plan-documents rule is flawed. In fact, the closest that any court has come to providing a reason for rejecting the claim that 29 U.S.C. § 1104(a)(1)(D) controls the issue is the Fifth Circuit’s claim that the section is “a very thin reed” upon which to conclude that ERISA expressly controls whether a beneficiary interest can be waived in a divorce decree. Manning v. Hayes, 212 F.3d 866, 872 (5th Cir. 2000). Because the waiver rule is based, at best, on throwaway, conclusory statements rather than a careful analysis of statutory language, I believe the fact that a majority of cases have adopted it is entitled to little weight.

Moreover, the U.S. Supreme Court’s decision in Egelhoff v. Egelhoff, supra, bolsters the conclusion that the language of ERISA, rather than the federal common law, controls the issue presented by this case. In Egelhoff, the court held that ERISA preempted a Washington statute that provided that the designation of a spouse as a beneficiary of a nonprobate asset is revoked automatically upon divorce. The court concluded that the statute had an impermissible connection with the beneficiary determination. It reasoned that the statute ran counter to

ERISA’s commands that a plan shall “specify the basis on which payments are made to and from the plan,” § 1102(b)(4), and that the fiduciary shall administer the plan “in accordance with the documents and instruments governing the plan,” § 1104(a)(1)(D), making payments to a “beneficiary” who is “designated by a participant, or by the terms of [the] plan.” § 1002(8).

(Emphasis supplied.) 532 U.S. at 147.

Egelhoff, although not directly on point, undercuts the majority’s claim that ERISA remains silent on how plan administrators should determine who the beneficiary of a death benefit is. According to the Court, 29 U.S.C. § 1104(a)(1)(D)— when coupled with other ERISA provisions — functions as a “command” that a plan administrator should determine the beneficiary in accordance with the documents and instruments governing the plan. If so, the plan administrator need not supplement ERISA with federal common-law rules that look outside the plan documents.

Policy

Not only is the waiver rule more consistent with the plain language of ERISA, it also better serves the policy reasons that drove Congress’ decision to adopt ERISA. “One of the principal goals of ERISA is to enable employers ‘to establish a uniform administrative scheme, which provides a set of standard procedures to guide processing of claims and disbursements of benefits.’ ” Egelhoff v. Egelhoff, 532 U.S. 141, 148, 121 S. Ct. 1322, 149 L. Ed. 2d 264 (2001) (quoting Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 107 S. Ct. 2211, 96 L. Ed. 2d 1 (1987)). Under the plan-documents rule, an employer can adopt rules providing that the beneficiary designation on file will control who will receive benefits. Then, no need exists to analyze the language of divorce decrees to determine if there has been a waiver. A plan administrator can look at the beneficiary designation on file and immediately know to whom it must pay the proceeds. This “yield[s] simple administration, avoid[s] double liability, and ensure[s] that beneficiaries get what’s coming quickly, without the folderol essential in less-certain rules.” Fox Valley & Vic. Const. Wkrs. Pension F. v. Brown, 897 F.2d 275, 283 (7th Cir. 1990) (Easterbrook, J., dissenting).

In contrast, the “waiver rule” frustrates Congress’ goal of easy and uniform administration. The Seventh Circuit, in Fox Valley & Vic. Const. Wkrs. Pension F. v. Brown, supra, was one of the first courts to adopt the waiver rule. At the time, it predicted that “the federal courts are charged with creating federal common law rules to govern ERISA . . . and the creation of such federal rules will provide the needed uniformity.” 897 F.3d at 281-82. The reality, however, has been something far different.

A myriad of tests has been developed for determining whether language in a divorce decree was sufficient to act as a waiver. At one end of the spectrum is the Seventh Circuit, which invokes what appears to be an objective test; language in a decree satisfies the test if “a reasonable person would have understood that she was waiving her interest in the proceeds or benefits in question.” Melton v. Melton, 324 F.3d 941, 945-46 (7th Cir. 2003).

In contrast, the Eighth Circuit ostensibly employs a test similar to the Seventh Circuit, asking whether the decree’s language is “sufficiently specific to convey the intent of the parties to divest one or the other, or both, of a beneficiary interest.” Hill v. AT&T Corp., 125 F.3d 646, 648 (8th Cir. 1997). Yet, the Eighth Circuit will go beyond the decree’s language and examine the parties’ postdivorce relationship to determine whether a waiver was intended. For example, in Mohamed v. Kerr, 53 F.3d 911 (8th Cir. 1995), the court concluded that the former spouse of an employee had waived her interest in the employee’s benefit plan. One of the reasons that the court gave was that after the former spouse of the employee found out he had Alzheimer’s disease, she “could not get away fast enough, and she never looked back.” Id. at 916.

The Fifth Circuit falls somewhere in between the Seventh and Eighth Circuits. It will look first to the language of the decree, but will apparently go beyond that language to ensure that the waiver was voluntary and made in good faith. See Manning v. Hayes, 212 F.3d 866 (5th Cir. 2000).

Finally, other courts adopting the waiver rule have opted to avoid providing any guidance on how to determine if a waiver has occurred. See, Estate of Altobelli v. Intern. Bus. Machines Corp., 77 F.3d 78 (4th Cir. 1996) (adopting waiver rule, but not stating test); Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904 (10th Cir. 1991) (suggesting waiver was possible, but not stating test). Of course, this approach does little to provide guidance to plan administrators trying to figure out to whom they are to pay plan benefits.

The disparity in how courts determine whether a waiver exists has resulted in substantially similar language being treated differently. For example, in Fox Valley & Vic. Const. Wkrs. Pension F. v. Brown, supra, the court held that an ex-wife waived her interest in the death benefits of her former husband’s pension plan when the divorce decree provided “ ‘the parties each waive any interest or claim in and to any retirement, pension, profit-sharing and/or annuity plans resulting from the employment of the other party.’ ” Likewise, in Estate of Altobelli v. Intern. Bus. Machines Corp., 77 F.3d at 80-81, the court found that a wife “clearly intended” to waive her interest in her husband’s pension, when the decree provided, “ ‘All of the following property is hereafter the sole and exclusive property of the Husband, and the Wife hereby waives and transfers to the Husband any interest that she may have in the property: . . . Husband’s IBM pension ....’” But in Lyman Lumber Co. v. Hill, 877 F.2d 692, 693 (8th Cir. 1989), the court held that language in a decree stating the employee “ ‘shall have as his own, free of any interest of [his wife], his interest in the profit-sharing plan of his employer ...’” did not waive the wife’s beneficiary interest in the profit-sharing plan because the language was not specific enough.

But the complications that arise from the waiver rule are not merely cross-jurisdictional. Even within a jurisdiction, whether a waiver has occurred often depends upon hairline distinctions. For example, in the Eighth Circuit, sometimes the failure to specify an exact interest in an employee benefit plan will result in a finding of no waiver. Lyman Lumber Co. v. Hill, supra. Yet, sometimes broad, sweeping language means that a waiver was intended. See Mohamed v. Kerr, supra. A decree that states a spouse is giving up “any interest” in a plan means no waiver was intended; but a decree that states giving up “any interest or claim” equates to a waiver. Id. Similarly, reciprocal language — both spouses giving up any interest in the other spouse’s benefit plan — is, for reasons that escape me, more indicative of an intent to waive than language in which only one spouse gives up an interest in the other spouse’s benefit plan. Id.

So, the waiver rule has not resulted in the predicted uniformity, but instead has provided an array of muddled and sometimes contradictory precedents. Plan administrators (let alone attorneys drafting' divorce decrees) have little hope of knowing what construction a court will give to particular language or if factors outside of the divorce decree should be considered. This confusion is the antithesis of what Congress intended and encourages “conflicts among parties asserting rights to plan benefits, miring plan assets in expensive litigation.” Estate of Altobelli v. Intern. Bus. Machines Corp., 77 F.3d 78, 83 (4th Cir. 1996) (Wilkinson, J., dissenting).

Perceived Fairness Created by Waiver Rule

Finally, I think it worth commenting on the factor that I believe is driving courts to adopt the waiver rule: the perception that it is fairer in individual cases than the plan-documents rule. To an extent, this is true. Under the plan-documents rule, a bargained-for agreement to give up a beneficiary interest in a spouse’s ERISA-governed benefit plan will go unenforced if it appears in a non-QDRO divorce decree. As a result, the spouse who had intended to waive the interest will receive a windfall. In contrast, the waiver rule would prevent at least some of these windfalls from happening by allowing plan administrators and courts to examine the extraneous documents in which the waiver was made. It is a similar concern for individual fairness that led me to join the opinion in Pinkard v. Confederation Life Ins. Co., 264 Neb. 312, 647 N.W.2d 85 (2002), which holds that for nonERISA investments and insurance policies, a beneficiary interest can be waived in a divorce decree.

But this concern for individual fairness comes at a price. It leads to a lack of uniformity that complicates administration, slows the payment of benefits, and encourages litigation. So, “what seem like small equitable steps in a particular case may lead to large administrative headaches in the aggregate.” Estate of Altobelli v. Intern. Bus. Machines Corp., 77 F.3d at 84. (Wilkinson, J., dissenting). Congress, hoping to avoid these “large headaches,” required the plan administrator to administer plans in accordance with the plan documents. In other words, it chose uniformity and ease of administration over individual fairness. That is a policy decision entrusted to Congress, and one that no court, including this one, has the power to disregard.

Stephan, J., joins in this dissent.