Details Matter When Completing A Beneficiary Designation!

A recent federal case, originating in Florida, illustrates the importance of compliance with the EXACT requirements to designate a beneficiary for a 401(k) and ESOP plan. In Arlene Ruiz V. Publix Super Markets, Inc., a federal district court determined that an intent to change a beneficiary is NOT enough to change a beneficiary if the exact requirements of the retirement plan are not met.

Irialeth, a former Publix employee, died of cancer on January 19, 2015. Prior to her death, she had participated in Publix ESOP plan and 401(k) plan (“the Plans”).  Publix provides a  Summary Plan Description (“SPD”) to all employees. The SPD states that to designate a beneficiary, the employee must complete, sign and date a beneficiary designation card (“the “Card”). A “change of beneficiary designation is not valid under the Plan until the retirement department receives and processes the properly completed” Card.

Irialeth submitted a properly completed Card changing her prior designated beneficiary to her nephew, Alexander Vargas and nieces, Andrea Vargas and Jessica Vargas  (the “Vargas Designation”). So far, so good.

After being diagnosed with cancer in September, 2011, Irialeth called Publix to change her beneficiaries from the Vargas Designation to a new beneficiary, Arlene Ruiz (“Arlene”). Arlene, who was in the room when Irialeth called Publix, stated that the Publix employee told Irialeth to write a letter with the name and social security number of the new designated beneficiary and sign and date the letter. The Publix employee stated that the “[C]ards really were not important” because Irialeth was not an “active associate at the time”.

Irialeth sent the letter, together with Cards with Arlene’s name and social security number, to Publix. The letter was signed and dated. The Cards were NOT signed and dated.

Irialeth died on January 19, 2015. Arlene claimed her benefits. Publix stated that they could not honor the beneficiary designation because the Cards had not been properly completed, dated and signed.

Arlene filed an action against Publix and Publix counterclaimed.

The primary issue was whether the doctrine of “substantial compliance” overrode the exact requirements of filling out the beneficiary designation. The “substantial compliance doctrine”, established under prior case law (in connection with an insurance policy) meant that “decedent need not actually comply but need only substantially comply with the change of beneficiary provisions of the policy to effectuate the desired change”. Thus, Arlene argued, if Irialeth substantially complied with the Plan provisions, then Irialeth’s intent should be given effect.

The court thoroughly reviewed case law on “substantial compliance”. However, because of the Supreme Court case, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, the court determined that the doctrine of substantial compliance did NOT apply.

The court determined that, after Kennedy, “it is doubtful that the doctrine of substantial compliance remains viable, given the Supreme Court’s emphasis on the duty of a plan administrator to act in accordance with the plan documents”  and determined that “ERISA forecloses any justification for inquiries into expressions of intent that do not comply with the plan documents”.

Thus, because the Cards were not properly completed, Arlene was NOT the beneficiary and the Vargas Designation was the proper designation.

ADVICE:  Often, individuals call or email representatives of companies to obtain information. DO NOT RELY on them. You (or your attorney) need to actually review the documents to be sure that you are completing the forms correctly. While customer representatives often try to do the right thing, they can not offer legal advice and they may often not understand the impact of the question being asked. Be careful out there!

WORD OF THE WEEK: Summary Plan Description (“SPD”) is the document that summarizes a company’s Plan’s rights and obligations to participants and beneficiaries. The SPD should be understandable to the average participant of the employer. SPDs do NOT include all of the Plan provisions. You must actually read the Plan document to learn all the Plan provisions.



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