Egelhoff, Donna v. Egelhoff, Samantha, et al. (03/21/2001)

By: David Mitchell, Medill News Service

Questions presented

(1) Does the federal Employee Retirement Income Security Act (ERISA) preempt the use of state law to override the beneficiary designations made under an ERISA plan?

Brief

On Oct. 1, 1993, David A. Egelhoff and Donna Rae Egelhoff separated after four and a half years of marriage. While husband and wife, David designated Donna as beneficiary of his life insurance policy and his pension plan provided through his employer, Boeing Company.

At the time, the parties stipulated that the administration of both his life insurance policy and pension plan was governed by the federal Employee Retirement Income Security Act (ERISA).

Nearly three months after their separation, Donna Egelhoff filed a petition for dissolution of marriage in the Pierce County Superior Court. A decree of dissolution was granted in April of 1994, and a document in the decree granted David Egelhoff his entire retirement 401K and IRA.

Just over two months after his marriage was dissolved, David Egelhoff died from injuries sustained in an automobile accident. Donna Egelhoff was still listed as the beneficiary of record under both his life insurance policy and pension plan. In August 1994, Donna Egelhoff received $46,000 as the proceeds from David Egelhoffs life insurance policy.

Two years later, in November of 1996, Samantha and David Egelhoff, the children from David Egelhoffs first marriage, filed a complaint in Pierce County Superior Court against Donna Rae Egelhoff in an attempt to recover the money that she had received from the life insurance company. A judge granted summary judgment in favor of Donna Egelhoff with the court concluding that the life insurance plan ""should be administered in accordance with the Employment Retirement Income Security Act and the designated beneficiary É shall have all legal rights to the proceeds which have been paid thereto.""

The children also sought to recover their fathers pension plan benefits, which Boeing stipulated were to go to the children if they did not go to a named beneficiary and there was no surviving spouse. David and Samantha Egelhoff claimed that Donna Egelhoff waived her right to the benefits in the marriage dissolution decree.

The judge also ordered that the pension plan benefits be distributed in accordance with ERISA, and that Donna Rae Egelhoff should have the legal rights to the benefits. As to the pension benefits only, the judge stayed her ruling pending the outcome of an appeal.

The Court of Appeals on Dec. 23, 1998 reversed the rulings of the Pierce County Superior Court and ""determined the children of Decedent David A. Egelhoff were entitled to the benefits of his pension plan and employment-based life insurance."" The court concluded that the benefits were not preempted by ERISA.

The Washington Supreme Court affirmed, ruling that ""despite the reality of her survival, Donna Rae Egelhoff is legally considered to have predeceased the plan participant, Decedent David A. Egelhoff, with the result that there is no valid beneficiary designated in the plan. Without reliance upon any state distribution scheme, his children and heirs, Respondents, would receive his pension plan benefits.""

In so concluding, the Washington Supreme Court analyzed whether the benefits that would otherwise go to David Egelhoffs children were preempted by the ERISA plan. ""Generally, a state law has a connection with an ERISA plan if it mandates plan benefit structures or some aspect of their administration,"" the court noted. Yet the court found that the state statute in question neither ""refers to"" nor has a sufficient ""connection with"" an ERISA plan to justify preemption, and concluded the children were properly awarded the benefits under their father's pension plan.

On June 19, 2000, the U.S. Supreme Court granted certiorari in the case, and allowed Boeing Company, et al. and the American Council of Life Insurers to file amicus briefs.

On March 21, 2001, the Court decided 7-2 that ERISA preempted the Washington state statute that revokes the benefits to a divorced spouse when no beneficiary is named in a life insurance policy or employee benefit plan.

The problem with the state statute, Justice Clarence Thomas wrote for the majority, is that it undermines the uniformity ERISA was intended to ensure in the processing of claims and disbursement of benefits.

""The Washington statute at issue here poses precisely that threat,"" Thomas wrote. ""Plan administrators cannot make payments simply by identifying thebeneficiary specified by the plan documents. Instead they must familiarize themselves with state statutes so that they can determine whether thenamed beneficiarys status has been 'revoked' by operation of law. And in this context the burden is exacerbated by the choice-of-law problemsthat may confront an administrator when the employer is located in one State, the plan participant lives in another, and the participants formerspouse lives in a third.""

Justices John Paul Stevens and Stephen Breyer dissented.