Employer life insurance, ERISA and beneficiary disputes

Life insurance offered through a private-sector employer is usually governed by the federal Employee Retirement Income Security Act (ERISA), and ERISA generally requires the plan to pay the beneficiary named in its own records. That rule overrides many state laws, including statutes that cancel an ex-spouse's designation after divorce, and it makes the plan's enrollment record, not your will or divorce decree, the document that decides. If you have workplace coverage, the beneficiary form in your benefits system is the one that matters.

Which policies ERISA covers

ERISA applies to employee welfare benefit plans established by private-sector employers or unions. A group life insurance benefit offered through work is typically one of those plans, whether it is the employer-paid basic benefit or supplemental coverage the employee pays for. An individual policy you buy yourself is not an ERISA plan, so state insurance law and your policy control it.

ERISA does not apply to some plans. Under 29 U.S.C. §1003(b), governmental plans and church plans (unless they elect coverage) are excluded, so a public school district's or a city's life benefit follows state law and the plan's own rules instead. Federal programs such as Federal Employees' Group Life Insurance (FEGLI): Basic, A, B and C and Servicemembers' Group Life Insurance have their own statutes. See employer group life insurance: what it really covers for how group coverage works generally.

The plan-documents rule

ERISA requires the plan's fiduciary, the administrator, to act "in accordance with the documents and instruments governing the plan" (29 U.S.C. §1104(a)(1)(D)). In a beneficiary dispute, that means the administrator pays the person the plan's records name and does not have to investigate outside claims about what the participant intended, who deserves the money, or what a court decree said. The rule is simple to administer, and sometimes harsh for families.

Egelhoff v. Egelhoff (2001)

David Egelhoff named his wife Donna as beneficiary of his employer's life insurance and pension plan. They divorced, and he died about two months later without changing the form. Washington State had a law revoking an ex-spouse's designation on divorce. The Supreme Court held that ERISA preempts that statute as applied to ERISA plans, because it would force administrators to look beyond the plan documents to state law and could differ from state to state. The plan paid Donna. See divorce and your ex as beneficiary: revocation-on-divorce laws for how the same statutes work for individual policies.

Kennedy v. Plan Administrator for DuPont (2009)

William Kennedy named his wife Liv as beneficiary of a DuPont savings plan, and their divorce decree later said she waived her rights to his plan benefits. He never changed the beneficiary form. In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009), the Court held that the administrator acted properly in paying Liv Kennedy, because it was entitled to follow the plan documents, which still named her. The case concerned a savings and investment plan, but the same plan-documents principle is applied to employer life insurance. The ruling does not necessarily leave the family with no remedy against the ex-spouse in other proceedings, but it ends the dispute for the plan.

What this means in practice

Courts differ on a few edge cases. Some federal courts apply a "substantial compliance" idea when a participant clearly tried to change a beneficiary but did not complete the plan's form, and others insist on the plan's exact procedure. Because that depends on your circuit, do not rely on it.

Limits of the rule

• Domestic relations orders. A qualified domestic relations order is a tool Congress created in ERISA mainly for pension and retirement plans. It does not by its terms solve beneficiary problems for a life insurance plan, so a decree alone is a weak protection for group life.
• Federal programs. The Court applied the same logic in Hillman v. Maretta (2013) for federal employees' life insurance, holding that the federal statute preempted a Virginia law letting someone sue the named ex-spouse. See Federal Employees' Group Life Insurance (FEGLI): Basic, A, B and C.
• State law on insured plans. ERISA's "savings clause" lets states regulate insurance, but state-law claims that duplicate or replace ERISA remedies are preempted. In Pilot Life Insurance Co. v. Dedeaux (1987) the Court held that state bad-faith claims over an ERISA plan's benefit denial were preempted. That is why bad-faith lawsuits that work on individual policies often don't work for employer coverage. See bad faith claim handling by life insurers.

How an ERISA claim and dispute work

1. File the claim with the plan or insurer. The plan administrator, often the employer, and the insurance carrier handle the paperwork; see how to file a life insurance claim.
2. Deadlines. Under the Department of Labor's claims regulation, 29 CFR 2560.503-1, the plan must decide a claim within 90 days, extendable once by 90 days; a denial must explain the reasons; the claimant has at least 60 days to appeal; and the appeal must be decided within 60 days, extendable once by 60 days. Ask the plan for its written claims procedure.
3. Appeal internally first. A court generally requires exhausting the plan's appeal. See how to appeal a denied life insurance claim.
4. Court. A suit under ERISA §502(a)(1)(B) is brought in federal court. There is typically no jury and no punitive damages, and where the plan gives the administrator discretion, courts review the decision deferentially under Firestone Tire & Rubber Co. v. Bruch (1989).
5. Competing claimants. If two people claim the same proceeds, for example a current spouse and an ex, the carrier often files an interpleader, deposits the money with the court and steps aside. See life insurance beneficiary disputes and interpleader.

Hypothetical example

Say Chris, 44, has $200,000 of basic life coverage through his employer. He names his wife Dana in the benefits portal. Chris and Dana divorce, the decree says each waives the other's benefits, and Chris, who plans to update the form "later," dies in a car accident before he does. His mother sues the plan, saying Chris wanted her to receive the money. Under the plan-documents rule, the plan pays Dana, whose name is the only one in its records. Chris's mother may have to pursue Dana separately, with uncertain results. This is an illustration, not a prediction for any real case.

Protecting yourself

1. Log in to your benefits portal now and read the beneficiary screen for every employer plan, including supplemental and dependent coverage.
2. Update it after marriage, divorce, birth, adoption or death, and print or save the confirmation.
3. Name a contingent beneficiary, and for children name a trust or custodian; see naming a minor child as life insurance beneficiary.
4. If you leave a job, check whether the coverage ends or can be converted; see employer life insurance claims after leaving a job and keeping group life insurance when you leave a job.
5. Do not assume your decree or will changed the plan record.
6. Consider a lawyer if a large sum is in dispute; see when to hire a life insurance lawyer.

Key takeaways

• Private-sector group life is usually governed by ERISA, and the plan pays the person its records name.
• Egelhoff (2001) means state revocation-on-divorce laws don't apply to ERISA plans; Kennedy (2009) means a divorce-decree waiver doesn't override the plan's form.
• Governmental and church plans fall outside ERISA, and individual policies follow state law.
• Claims have federal deadlines: 90 days to decide, 60 days to appeal, with limited extensions, and you generally must appeal internally before suing.
• The practical fix is the beneficiary form itself: update it after every life change and save the confirmation.