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Plan Rules Trump Divorce Agreement

The U.S. Supreme Court has ruled that the administrator of a retirement plan must follow the plan’s rules when distributing a deceased worker’s benefits, unless a “qualified domestic relations order” has been filed with the plan. 

In Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, William Kennedy had designated his wife Liv Kennedy as the sole beneficiary of his retirement savings plan.  When the couple divorced in 1994, Liv Kennedy gave up her rights to receive any benefits from the plan. Her waiver of the benefits was incorporated in the divorce decree.

When William Kennedy died in 2001, the plan paid his benefits to his ex-wife because she was still designated as his beneficiary. William Kennedy's daughter, as executor of the estate, argued that because Liv had given up her rights to the benefits in the divorce decree, the plan should have paid them to the estate.

The Supreme Court found that since Liv’s name had never been removed from the plan document giving her the benefits – and because the divorce decree was not a “qualified domestic relations order” (QDRO) that could have directed the plan to pay the benefits to someone else – the plan administrator was correct in paying William’s retirement plan benefits to Liv.

In reaching its decision, the Court acknowledged that its ruling was inconsistent with the agreement of the parties, but found that the law required that it uphold the “straightforward rule” that a plan administrator has a duty to act in accordance with the plan documents, rather than trying to determine the intent of the parties.

Read the Supreme Court's decision [PDF] in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan.

Read the Fifth Circuit's decision [PDF].