Can an Estate Sue To Enforce a Contractual Waiver By a Former Spouse After Distribution Of ERISA-Governed 401(k) Proceeds?

In Lynn Martinez Olson v. The Estate of Dan Olson, a September 1, 2021 opinion from Florida’s Third District Court of Appeal, the court determined that a Florida estate can sue to enforce a waiver in a marital settlement agreement by a former spouse after distribution of ERISA-governed 401(k) proceeds.

The Facts Of Lynn Martinez-Olson v. The Estate of Dan Olson

Dan Olson and Lynn Martinez married in 1998.  Dan participated in a 401(k) program governed by the Employee Retirement Income Security Act of 1974 (ERISA). Dan executed a beneficiary designation form naming his wife, Lynn, as the first beneficiary and his “living children” as the second beneficiaries under the 401(k) plan.

Dan and Lynn divorced in 2017.  Their marital settlement agreement provided as follows:

ARTICLE IX RETIREMENT

9.1

Each party shall receive any and all benefits existing by reason of his or her past, present, or future employment or military service, including but not limited to any profit-sharing plan, retirement plan, Keogh plan, employee stock option plan, 401(k) plan, employee savings plan, military retired pay, accrued unpaid bonuses, or disability plan, whether matured or unmatured, accrued or unaccrued, vested or otherwise, together with all increases thereof, the proceeds therefrom and any other rights related thereto. The other party hereby waives and releases any and all claims or interest therein.

ARTICLE X DIVISION OF OTHER ASSETS AND LIABILITIES . . . .

10.3 Each party shall have exclusive ownership in all items of property that are currently in his or her possession or control, and the other party waives and releases any and all claim or interest in such items.

Dan Dies Without Changing the Beneficiary Designation

Dan died two years after the divorce.  Dan did not change the beneficiary on his 401K plan prior to his death.  Chelsea Olson, Dan’s daughter from a prior marriage, was appointed as personal representative of his Florida estate.  The personal representative and Lynn made competing claims to the proceeds from Dan’s 401(k) plan. The proceeds were distributed to Lynn as the named beneficiary of the 401(k) plan.

The personal representative filed a motion to enforce the marital settlement agreement.  The personal representative argued that while plan administrator was  required to distribute the 401(k) proceeds to Lynn,  Lynn had waived any right to the proceeds, and that ERISA does not preclude the Estate from bringing a post-distribution action to enforce the contractual waiver and to recover the plan proceeds.

The matter was referred to a magistrate, who found that the Marital Settlement Agreement did not waive Lynn’s beneficiary rights because there was no specific reference to “death benefits” or “death beneficiary designations” to override the 401(k) plan document naming Lynn as the first beneficiary.

The Estate filed exceptions to the magistrate’s finding that since the Agreement does not expressly state that Lynn waived entitlement to the “death benefits” from Dan’s 401(k) plan, Lynn is entitled to those benefits as the named beneficiary. The Estate asserted that if the Agreement was silent as to who was entitled to receive the “death benefits” of the 401(k) plan, then Florida’s revocation-on-divorce statute would provide the legal mechanism to automatically revoke Lynn’s beneficiary designation and provide a transfer of these benefits as if Lynn had predeceased Dan.

The trial court agreed with the Estate, and ordered Lynn to turn over all of the proceeds received from Dan’s 401(k) plan.  Lynn appealed.

When Does a Marital Settlement Agreement Override a Beneficiary Designation Of a 401(k)?

A marital settlement agreement will override a 401(k) beneficiary designation when the language of the agreement is specific enough to do so.  In the Florida Supreme Court decision of Crawford v. Barker, the Court generally stated:

. . . absent the marital settlement agreement providing who is or is not to receive the death benefits or specifying who is to be the beneficiary, courts should look no further than the named beneficiary in the separate document of the policy, plan, or account. General language in a marital settlement agreement, such as language stating who is to receive ownership, is not specific enough to override the plain language of the beneficiary designation in the separate document. The spouse, who owns the policy, plan, or account following the dissolution of marriage, is otherwise free to name any individual as the beneficiary; however, if the spouse does not change the beneficiary, the beneficiary designation in the separate document controls.

Here, the marital settlement agreement provides the following specific waiver:

 9.1 Each party shall receive any and all benefits existing by reason of his or her past, present, or future employment . . . including but not limited to any . . . retirement plan . . . 401(k) plan . . . whether matured or unmatured, accrued or unaccrued, vested or otherwise, together with all increases thereof, the proceeds therefrom and any other rights related thereto. The other party hereby waives and releases any and all claims or interest therein.

The Florida appellate court stated:

This provision clearly mentions Dan’s 401(k) plan. According to the Supreme Court’s decision in Crawford, “when the settlement agreement mentions the disputed policy or plan, the question then becomes whether the language in the settlement agreement is specific enough to override the predissolution beneficiary.” 64 So. 3d at 1253.

No magic words are required in a marital settlement agreement in order to specify who is to receive the proceeds or benefits of a policy, plan, or account.  The Court held that based on the plain language of the Agreement, Dan and Lynn intended to receive all rights and benefits, including the proceeds, from their respective 401(k) plans and unambiguously waived any and all claims or interests in the other’s 401(k) plan.

Can an Estate Sue To Enforce a Contractual Waiver After Distribution Of ERISA-Governed 401(k) Proceeds?

In a question of first impression for the Court, the court considered whether the estate was permitted to bring a state law action against the named beneficiary to enforce a contractual waiver after distribution of the ERISA-governed 401(k) plan proceeds.  The Court concluded that yes, an estate can sue to recover 401(k) proceeds after they are distributed by the ERISA plan administrator pursuant to the plan documents.  The Court stated:

In MetLife, the Eleventh Circuit held that, while “a party who is not a named beneficiary of an ERISA plan may not sue the plan for any plan benefits,” (which is not the case here), that party may sue the plan beneficiary to recover those benefits, “but only after the plan beneficiary has received the benefits.” Id. at 1007. In reaching this decision, the Eleventh Circuit relied upon a sister appellate court’s decision, Estate of Kensinger v. URL Pharma, Inc., 674 F.3d 131 (3d Cir. 2012),8 which held that once the benefits were distributed to the designated beneficiary, ERISA is no longer implicated. Id. at 137 (“[T]o the extent that ERISA is concerned with the expeditious payment of plan proceeds to beneficiaries, permitting suits against beneficiaries after benefits have been paid does not implicate any concern of expeditious payment or undermine any core objective of ERISA.”)

In line with MetLife, Kensinger, and other analogous decisions, the Estate asserts that ERISA does not preempt post-distribution suits against named beneficiaries to enforce a contractual waiver of plan proceeds. We agree and approve the growing body of case law supporting the Estate’s position that it can sue to recover the proceeds after they are distributed by the ERISA plan administrator pursuant to the plan documents.

Therefore, the Estate was entitled to bring this action against Lynn to enforce that contractual waiver and to recover the plan proceeds.  To learn more about litigation involving ERISA, read:

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