Keen v. Weaver

121 S.W.3d 721, 30 Employee Benefits Cas. (BNA) 2806, 46 Tex. Sup. Ct. J. 804, 2003 Tex. LEXIS 82, 2003 WL 21467100

• Court: Texas Supreme Court
• Decided: June 19, 2003
• Docket: 01-0447
• Status: Published

Opinions

Justice O’NEILL

delivered the opinion of the Court,

in which Chief Justice PHILLIPS, Justice ENOCH, Justice SCHNEIDER and Justice SMITH joined.

In this case, an ERISA pension plan participant designated his wife as the plan’s primary beneficiary. The couple later divorced and, in an agreement incorporated in the divorce decree, the former wife waived any interest in the plan, agreeing that it would be the participant’s sole property. When the participant died some thirteen years later without changing his beneficiary designation, the former wife and the participant’s alternative beneficiary lodged competing claims to the plan proceeds. We must decide whether ERISA precludes a pension plan beneficiary from waiving an interest in the plan. We conclude that it does not, and hold that the former wife’s waiver is effective. Accordingly, we affirm the court of appeals’ judgment.

I

Frank Weaver and Patsy Keen married in 1967. During the marriage, Frank purchased two annuity plans as part of his employee benefits — a Teacher’s Insurance and Annuity Association Contract and a College Retirement Equities Fund (TIAA-CREF). It is undisputed that these annuity plans are “employee pension benefit plans,” as defined by the Employee Retirement Income Security Act (ERISA). 29 U.S.C. § 1002(2)(A). Frank named Patsy as the plans’ primary beneficiary and his mother, Rita Weaver, as the contingent beneficiary. Frank and Patsy divorced in 1982. The divorce decree incorporated an agreement incident to divorce that divided the couple’s estate and awarded Frank the TIAA-CREF plans as his sole and separate property. Frank never changed the plans’ primary beneficiary designations.

Frank married Diana Weaver in 1983, and they remained married until Frank’s death in 1995. Relying on the beneficiary designation in the plan documents, the plan administrators paid part of the death benefits to Patsy. Rita Weaver, as the contingent beneficiary, sued Patsy and TIAA-CREF for breach of contract, conversion, and unjust enrichment, claiming that she was entitled to the annuity proceeds because Patsy had waived entitlement to the benefits in the divorce decree. Rita died while the suit was pending, and Diana Weaver, as independent executrix of Frank’s and Rita’s estates, continued the suit. TIAA-CREF interpleaded the remaining benefits and obtained an order absolving them from any further liability on the plans other than to pay the benefits according to the final judgment. Patsy counterclaimed, asserting entitlement to the proceeds as the designated beneficiary.

After a bench trial, the district court held that Patsy was entitled to the plan proceeds. The court of appeals reversed, however, holding that the Texas “redesig-nation statute,” although preempted by ERISA, applied as federal common law to revoke Patsy’s beneficiary designation after divorce and redesignate Rita Weaver as the plan beneficiary. 43 S.W.3d 537, 544. This holding comports with the court of appeals’ decision in Emmens v. Johnson, 923 S.W.2d 705, 707-08 (Tex.App.-Houston [1st Dist.] 1996, writ denied), but conflicts with Heggy v. Am. Trading Employee Ret. Account Plan, 56 S.W.3d 280, 283-85 (Tex.App.-Houston [14th Dist.] 2001, no pet.). Those courts, and the court of appeals here, all agree that ERISA preempts the Texas redesignation statute, but they disagree on what happens given ERISA preemption. Like the court of appeals in this case, the Emmens court adopted the Texas redesignation statute as federal common law and held that a divorce automatically revokes a former spouse’s beneficiary designation. Emmens, 923 S.W.2d at 712. In Heggy, on the other hand, the court held that ERISA requires the plan documents to control regardless of the circumstances and precludes a former spouse’s contractual waiver of plan proceeds. Heggy, 56 S.W.3d at 283-85. We granted Patsy’s petition for review to resolve this conflict among our courts of appeals.

II

Section 9.302 of the Texas Family Code, known as the “redesignation statute,” provides that the designation of a spouse as a retirement account beneficiary is rendered ineffective by a subsequent divorce. Texas FamCode § 9.302(a).¹ If the statute applied here, it would operate to award Rita’s estate the plan proceeds as the alternate beneficiary. Id. § 9.302(b). But the court of appeals held, and the parties acknowledge, that ERISA preempts the redesignation statute. See 43 S.W.3d at 541. We agree.

ERISA’s preemption section states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144(a). A state law “relates to” an ERISA plan “if it has a connection with or reference to such a plan.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). The United States Supreme Court recently held that ERISA expressly preempted a Washington statute similar to our redesignation statute. Egelhoff v. Egelhoff, 532 U.S. 141, 143, 121 S.Ct. 1322, 149 L.Ed.2d 264 (2001). The Court held that the statute had an impermissible connection to ERISA plans for two reasons. First, the statute governed plan administrators’ benefit payments and thus “impli-eate[d] an area of core ERISA concern.” Id. at 147, 121 S.Ct. 1322. Second, statutes differ among the various states and thus interfere “with nationally uniform plan administration.” Id. at 148, 121 S.Ct. 1322. For these same reasons, ERISA expressly preempts the Texas statute’s application to determine plan beneficiaries. See Manning v. Hayes, 212 F.3d 866, 870 (5th Cir.2000), cert. denied, 532 U.S. 941, 121 S.Ct. 1401, 149 L.Ed.2d 345 (2001) (“Almost every circuit court to consider the issue ... has determined that a state law governing the designation of an ERISA beneficiary ‘relates to’ the ERISA plan, and is therefore preempted.”).

Ill

Deciding that ERISA preempts the Texas redesignation statute, however, only raises a harder question. As the Fifth Circuit noted in Manning, “[t]he more difficult issue is whether, having established that the state law is preempted, the federal law governing the resolution of this and similar cases may be reasonably drawn from the text of ERISA itself, or must instead be developed as a matter of federal common law.” Manning, 212 F.3d at 870. Federal common law is a “ ‘necessary expedient’ ” that courts resort to when “compelled to consider federal questions ‘which cannot be answered from federal statutes alone.’ ” Milwaukee v. Illinois, 451 U.S. 304, 314, 101 S.Ct. 1784, 68 L.Ed.2d 114 (1981) (citations omitted). Thus, the threshold inquiry is whether ERISA’s text explicitly resolves the question before us.

Patsy argues that sections 1002(8) and 1104(a)(1)(D) of ERISA mandate the payment of plan proceeds to her, despite her unequivocal agreement in the divorce decree to relinquish her interest in them. Section 1002(8) defines a “beneficiary” as “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.” 29 U.S.C. § 1002(8). Section 1104, which delineates the fiduciary responsibilities that ERISA plan administrators owe to plan participants and beneficiaries, requires administrators to discharge their duties “in accordance with the documents and instruments governing the plan....” 29 U.S.C. § 1104(a)(1)(D). According to Patsy, these provisions prohibit plan administrators from looking beyond the plan documents and require them to distribute benefits to designated beneficiaries regardless of the circumstances. In Patsy’s view, ERISA prevents the plans’ administrator from giving her waiver of plan benefits any force or effect.

While Patsy’s interpretation is simple and easy to apply, we do not believe that ERISA’s text prohibits a plan administrator from recognizing a beneficiary’s waiver, disclaimer, or other repudiation of plan benefits. First, other provisions of ERISA require plan administrators to look beyond beneficiary designations in plan documents to determine entitlement to plan benefits. For example, while ERISA generally prohibits a participant’s assignment or alienation of pension benefits, since 1984 ERISA has provided a limited exception if the benefits are the subject of a qualified domestic relations order (QDRO). See 29 U.S.C. § 1056(d)(3)(A).² A plan administrator presented with a QDRO that satisfies ERISA’s fairly detailed requirements must pay an alternate payee designated in the QDRO rather than the beneficiary designated in plan documents. Boggs v. Boggs, 520 U.S. 833, 846-47, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997). And a spouse who is a designated beneficiary of a joint and survivor annuity may waive entitlement to those benefits under certain circumstances. 29 U.S.C. § 1055(c)(1)(A). Furthermore, the Supreme Court has recognized that ERISA welfare plan benefits may be garnished under state procedures. See Mackey v. Lanier Collection Agency & Serv. Inc., 486 U.S. 825, 841, 108 S.Ct. 2182, 100 L.Ed.2d 836 (1988).

In addition, the Supreme Court has directed courts to look to common-law principles and trust law when interpreting ERISA’s fiduciary duty provisions. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989); see also Varity Corp. v. Howe, 516 U.S. 489, 497, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (noting that the common law is not just an aid for interpreting ERISA’s fiduciary duties, but is even “a starting point”). This is precisely what the majority of circuit courts that have considered the issue have done, holding that federal common law governs disputes between a designated former spouse beneficiary and other claimants to ERISA plan proceeds. See Manning, 212 F.3d at 870-72; Clift v. Clift, 210 F.3d 268 (5th Cir. 2000); Rhoades v. Casey, 196 F.3d 592, 598-99 (5th Cir.1999), cert. denied, 531 U.S. 924, 121 S.Ct. 298, 148 L.Ed.2d 240 (2000); Hill v. AT & T Corp., 125 F.3d 646, 648 (8th Cir.1997); Estate of Altobelli v. Int’l Bus. Machines Cotp., 77 F.3d 78, 81-82 (4th Cir.1996); Mohamed v. Kerr, 53 F.3d 911, 914 (8th Cir.1995), cert. denied, 516 U.S. 868, 116 S.Ct. 185, 133 L.Ed.2d 123 (1995); Brandon v. Travelers Ins. Co., 18 F.3d 1321, 1325-27 (5th Cir.1994), cert. denied, 513 U.S. 1081, 115 S.Ct. 732, 130 L.Ed.2d 635 (1995); Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown, 897 F.2d 275, 280 (7th Cir.1990) (en banc), cert. denied, 498 U.S. 820, 111 S.Ct. 67, 112 L.Ed.2d 41 (1990); Lyman Lumber Co. v. Hill, 877 F.2d 692, 693-94 (8th Cir.1989); see also Melton v. Melton, 324 F.3d 941, 945 (7th Cir.2003) (noting, in post-Egelhoff decision, that “ERISA does not preempt an explicit waiver of interest by a nonparticipant beneficiary of such a plan”).³ These courts have relied upon common-law principles to conclude that the named beneficiary waived entitlement to plan benefits. Only the Sixth Circuit has unambiguously taken the minority view, that ERISA section 1104(a)(1)(D) expressly requires that plan benefits be paid to the designated beneficiary regardless of the circumstances and precludes the application of federal common law. See McMillan v. Parrott, 913 F.2d 310, 311-12 (6th Cir.1990); see also Metropolitan Life Ins. Co. v. Marsh, 119 F.3d 415, 421 (6th Cir.1997); Metropolitan Life Ins. Co. v. Pressley, 82 F.3d 126, 130 (6th Cir.1996); cf. Krishna v. Colgate Palmolive Co., 7 F.3d 11, 14-16 (2d Cir.1993) (holding that, although ERISA was “silent on the matter,” state law was preempted and “the cause of uniform administration” would not be served if state law were adopted as federal common law).

We do not believe that Egelhoff precludes the application of federal common law to this dispute. There, the Supreme Court expressed concern that applying individual state redesignation statutes would require plan administrators to resolve complex choice-of-law issues and become familiar with multiple state statutes in order to determine the appropriate beneficiary, thus “interfering with nationally uniform plan administration.” Egelhoff, 532 U.S. at 148-49, 121 S.Ct. 1322. In contrast, applying federal common law promotes national uniformity. Fox Valley, 897 F.2d at 281-82. The Court in Egelhoff did note that the state statute impermissi-bly interfered with plan administration by requiring administrators to look beyond plan documents to determine matters of payment. Id. at 147-48, 121 S.Ct. 1322. But the Court also indicated that applying a more uniform body of law might not present an equivalent hurdle. The Court strongly suggested that state “slayer statutes,” or common law based on the principles underlying those statutes, might present a different issue:

In the ERISA context, these “slayer” statutes could revoke the beneficiary status of someone who murdered a plan participant. Those statutes are not before us, so we do not decide the issue. We note, however, that the principle underlying the statutes — which have been adopted by nearly every State — is well established in the law and has a long historical pedigree predating ERISA. And because the statutes are more or less uniform nationwide, their interference with the aims of ERISA is at least debatable.

Id. at 152, 121 S.Ct. 1322 (citation omitted).⁴

Our decision in Barnett v. Barnett, 67 S.W.3d 107 (Tex.2001), is consistent with this approach. There, the surviving spouse’s claims depended on her community property rights. Id. at 112. Because most states are not community property states, a plurality of this Court believed that our community property laws do not lend themselves “to the application of uniform federal common law” and thus interfere with uniform ERISA plan administration. Id. at 126. The plurality recognized, though, that “Congress ‘intended that the courts would “develop a ‘federal common law of rights and obligations under ERISA-regulated plans.’ ” ’ ” Id. at 122 (quoting Singer v. Black & Decker Corp., 964 F.2d 1449, 1452 (4th Gir.1992) (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989))). The question is how that federal common law should be developed.

In this case, the court of appeals held that ERISA preempted our state redesig-nation statute, but nonetheless applied that statute’s express terms as federal common law. 43 S.W.3d at 544.. The court reaffirmed its analysis in a subsequent opinion denying rehearing after the Supreme Court issued Egelhoff, stating that “our conclusion that federal law controls is supported by Egelhoff.” 43 S.W.3d at 544-46. We agree that Egelhoff supports the conclusion that federal common law controls, but disagree with the court of appeals’ formulation of federal law as a mere conduit for applying individual state statutes. Such an approach presents the same obstacles to national uniformity that ERISA preemption was designed to prevent, requiring plan administrators to determine complex choice-of-law questions, and then to interpret and apply varying state laws. This approach also differs significantly from the one that the majority of federal circuit courts have applied in deciding this issue. While those courts have sometimes looked to state statutes governing the disposition of marital property to inform the analysis, they have gone beyond the statutes to develop a body of common law that recognizes a former spouse’s waiver of ERISA plan benefits in a divorce decree dividing the marital estate so long as it is specific, knowing, and voluntary. See, e.g., Brandon, 18 F.3d at 1326 (adopting presumption of waiver in Texas statute as federal common law, modified to require that a “waiver be voluntary and in good faith”); Fox Valley, 897 F.2d at 280-81 (looking to Illinois statute and to law of other states in determining that federal common law gives effect to a specific waiver); Lyman Lumber, 877 F.2d at 693 (applying the principle, derived from various circuit court and state court opinions, that a former spouse’s beneficiary interest is extinguished if it is specifically waived). The federal courts’ formulation of common law in this area, which ERISA’s text does not address, does not interfere with nationally uniform plan administration, and we apply it here.

Patsy argues that ERISA’s anti-alienation provision precludes giving effect to her waiver. Under that provision, “[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” 29 U.S.C. § 1056(d)(1). But the circuit courts that have specifically addressed this issue have agreed that this provision applies to the plan participant and “does not apply to a beneficiary’s waiver.” Altobelli 77 F.3d at 81; Fox Valley, 897 F.2d at 280; cf. Lyman Lumber, 877 F.2d at 693-94 (holding, without addressing the anti-alienation provision, that ex-spouse can waive pension benefits in a divorce decree). These courts have reasoned that the anti-alienation provision is “a spendthrift device intended to ensure that employees’ accrued benefits are available for retirement.” Altobelli, 77 F.3d at 81. The provision is intended “ ‘to safeguard a stream of income for pensioners (and their dependents),’ ” not to bar a waiver in the pensioner’s favor. Id. (quoting Guidry v. Sheet Metal Workers Nat’l Pension Fund, 493 U.S. 365, 376, 110 S.Ct. 680, 107 L.Ed.2d 782 (1990)); see also H.R.Rep. No. 807, 93d Cong., 2d Sess. 67-68 (1974), reprinted in 1974 U.S.C.C.A.N. 4639, 4734; Fox Valley, 897 F.2d at 279. We do not believe that applying the federal common law of waiver implicates or interferes with ERISA’s anti-alienation provision. To the extent that Heggy conflicts with this opinion, we disapprove it.

IV

In this case, Patsy does not contend that her waiver of plan benefits was not knowing and voluntary. During the divorce, Patsy, but not Frank, was represented by counsel, and it was her attorney who drafted the agreement. The waiver was also specific and clear:

Section 3

DIVISION OF ASSETS

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3.02 Property of Husband. The parties agree that Husband shall own, possess, enjoy, free from any claim of Wife, the property fisted in Schedule 2 of this agreement. Wife hereby grants, conveys, and assigns to Husband all such property....

Section 4

DIVISION OF EMPLOYEE BENEFITS

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4.02 Community Ownership. Husband has earned certain employee benefits arising out of present and past employment and the parties agree that Husband shall own all of said pension, profit sharing, retirement and deferred compensation benefits of all kinds resulting from his present and past employment as his sole and separate property, without any claim thereto by Wife....

Schedule 2

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(6) All sums, whether matured or unma-tured, accrued or unaccrued, vested or otherwise, together with all increases thereof, the proceeds therefrom, and any other rights related to any profit-sharing plan, retirement plan, pension plan, or like benefit program existing by reason of Husband’s past, present, or future employment, including but not limited to:

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(b) The Teachers’ Insurance and Annuity Association — College Retirement Equities Fund.

This agreement clearly contemplates not only a division of the specific retirement plans into separate property, but also a waiver of all Patsy’s interest in the plans. If the agreement were limited to Section 4.02, it might not be sufficient to waive Patsy’s beneficiary interest. See Manning, 212 F.3d at 876 (eschewing a “mechanistic formula,” but noting that “language explicitly divesting a former spouse of an interest in any and all employee benefit plans of the other is probably sufficient”); compare Altobelli, 77 F.3d at 80 (holding that language that “Wife hereby waives and transfers to the Husband any interest that she may have” created a valid waiver of interest in ERISA benefits), and Fox Valley, 897 F.2d at 277 (holding that language that “[t]he parties each waive any interest or claim in and to any ... plans” created a valid waiver of interest in ERISA plan), with Lyman Lumber, 877 F.2d at 693-94 (holding that decree that husband “shall have as his own, free of any interest of [wife], his interest in the ... plan” gave husband his own interest in the plan but did not “specifically refer to and modify” the wife’s beneficiary interest). But Section 3.02 and Schedule 2 leave no room for doubt that Patsy intended to relinquish all interests she might have in Frank’s ERISA plans, including her interest as beneficiary.

V

We hold that Patsy’s waiver of her interest in Frank’s ERISA plans was specific, knowing, and voluntary, and thus enforceable under federal common law. Accordingly, we affirm the court of appeals’ judgment, although on different grounds.

Justice HECHT filed a dissenting opinion in which Justice OWEN, Justice JEFFERSON and Justice WAINWRIGHT joined.

1 . There are exceptions to this rule/such as the post-divorce redesignation of the former spouse as beneficiary or the designation of the former spouse as beneficiary in the divorce decree. Id. None of the exceptions are relevant here.

2 . Frank and Patsy’s divorce decree was signed before the QDRO provision was effective. The parties do not argue, and we do not consider, whether or not the decree would satisfy the requirements for a QDRO.

3 . All of these cases were decided after the 1984 amendment to ERISA that the dissent believes 'undercuts” the rationale for looking to federal common law. 121 S.W.3d 730 (Hecht, J., dissenting).

4 . A federal district court has recently held that Egelhoff did not change the Fifth Circuit’s adoption of the federal common law rule, enunciated in Brandon, that recognizes the waiver of ERISA plan benefits. Metropolitan Life Ins. Co. v. Palmer, 238 F.Supp.2d 821, 824-26 (E.D.Tex.2002). And at least one court following Egelhoff has also held that a murderer should not be permitted to receive benefits from a victim's plan, either under a state slayer statute or under federal common law. See Admin. Comm, for the H.E.B. Inv. and Ret. Plan v. Harris, 217 F.Supp.2d 759, 761-62 (E.D.Tex.2002).