02.12.2015 Court Permits Beneficiary Designations By Telephone
BY: ELINOR P. HINDSLEY
In a somewhat surprising case, the US Court of Appeals for the Ninth Circuit has ruled that a participant may change his prior written beneficiary designation by a telephone call to the plan sponsor.
The Becker v. Mays-Williams, No.13-35069, 2015 Westlaw 348872 (9th Cir. Jan 28, 2015) case involved an employee of Xerox Corporation who participated in two Xerox retirement plans (the Xerox Plans). The participant designated his wife as his beneficiary under the Xerox Plans on the written beneficiary designation form. Following his divorce, he attempted to change his designated beneficiary under the Xerox Plans from his ex-wife to his son. He called Xerox on three different occasions stating his desire to change his beneficiary designation to his son. Following each call, Xerox sent the participant beneficiary designation forms, but the participant never returned the forms.
After the participant’s death, both his son and his ex-wife sought benefits under the Xerox Plans. The fiduciary of the Xerox Plans interpleaded both parties in federal district court to seek a determination on the proper beneficiary.
The district court found that the ex-wife was entitled to the benefit because the beneficiary designation forms were plan documents. On appeal, the Ninth Circuit reversed the district court’s decision. The Ninth Circuit began its analysis with the ERISA requirement that a plan fiduciary must distribute plan benefits in accordance with the terms of the plan documents. The Court then concluded that the beneficiary designation forms were not governing plan documents.
First, the court noted that the beneficiary designation forms were not plan documents because they did not contain information about the participant’s benefit entitlement. Only documents that provide information about where the participant stands with respect to the plan could constitute plan documents.
Second, the court noted that the terms of the Xerox Plans did not incorporate the beneficiary designation forms by reference. Other documents, such as trust agreements, were expressly incorporated by reference into the Xerox Plans, making them governing plan documents.
The Ninth Circuit concluded that the participant had substantially complied with the terms of the Xerox Plans, because the plan documents did not require the use of a beneficiary designation form to change a beneficiary designation. The Xerox plan documents required written designations for married participants, but did not impose a similar requirement on unmarried participants. Both Summary Plan Descriptions (SPDs) provided that a participant could visit the benefits website or call the Xerox Benefits Center to complete beneficiary designations. Based on the language of the Xerox Plans, the Ninth Circuit found that the plan documents permitted unmarried participants to change their beneficiary designations by telephone.
This case has practical implications for sponsors of retirement plans. Plan sponsors should review the beneficiary designation provisions in their retirement plan documents and SPDs. The plan document and SPD should clearly state the procedure for designating a beneficiary. If the plan sponsor wants to allow only written beneficiary designations, the plan documents should state this requirement.
Plan sponsors should also review any language in the SPD regarding participants calling a benefit plan hotline. The SPD should be clear that beneficiary designation instructions may not be taken over the phone.