Eighth Circuit Holds ERISA Does Not Preempt State Law Claims Against Recipient of ERISA Benefits

Gelschus v. Hogen, No. 21-3453, __F.4th__, 2022 WL 3712312 (8th Cir. Aug. 29, 2022) involves a scenario which occurs more often than it should: a couple divorces, they agree to waive their rights to the other’s employer-provided benefits, and then one of them dies without having effectively removed the other as a beneficiary. Who gets the benefits?

In this case, Sally Hogen had a 401(k)-plan account from her employment at Honeywell International Inc. Her then husband, Clifford Hogen, was named as the sole beneficiary in the event of her death. They divorced in 2002 and executed a marital termination agreement (MTA), wherein they agreed that “[Sally] will be awarded, free and clear of any claim on the part of [Clifford], all of the parties’ right, title, and interest in and to the Honeywell 401(k) Savings and Ownership Plan.” Six years later, she submitted a change-of-beneficiary form to Honeywell naming her siblings as beneficiaries and allocating each 33 1/3% of the 401(k) benefits. However, Honeywell rejected the designation because the instructions require that the allocation percentage must be whole percentages. Honeywell called Sally and left her a message and continued to send her annual statements showing Clifford as the sole beneficiary. Sally took no further action before her death in 2019 with nearly $600,000 in her plan account. Honeywell paid the benefits to Clifford. Robert Gelschus, as personal representative of Sally’s estate, sued Honeywell for breach of fiduciary duty, and sued Clifford for breach of contract, unjust enrichment, conversion, and civil theft. The district court granted summary judgment to both defendants. The Eighth Circuit affirmed summary judgment for Honeywell and reversed summary judgment for Clifford on the breach of contract and unjust enrichment claims.

On the ERISA claim against Honeywell, the court agreed with Honeywell that even though it has full discretionary authority, the Plan does not give the administrator discretion to accept designations that fail to comply with the forms. The Plan Summary states that a change of beneficiary may be made by properly completing and submitting a Beneficiary/Consent Designation Form. The Form states that “The Allocation % must be whole percentages.” Even if the administrator had discretion to accept Sally’s defective form, it was not an abuse of discretion to act in accordance with the plan documents and by distributing plan benefits to Clifford after learning about the MTA. The court also rejected Gelschus’s argument that Sally “substantially complied” with the plan’s requirements and that is enough to honor her attempted beneficiary change. Even if the substantial compliance doctrine remains available after Kennedy v. Plan Adm’r for DuPont Sav. & Inv. Plan, 555 U.S. 285, 300-01, 129 S.Ct. 865, 172 L.Ed.2d 662 (2009) and Matschiner v. Hartford Life & Acc. Ins. Co., 622 F.3d 885, 889 (8th Cir. 2010), the administrator has the power to require strict compliance with the terms of the plan. “Because Honeywell followed plan documents in rejecting Sally’s defective change-of-beneficiary form and distributing benefits, Gelschus’s breach of fiduciary duty claim fails.”

The court also held that Gelschus’s claims against Clifford are not preempted by ERISA. Kennedy did not address whether a personal representative may sue a recipient of ERISA benefits after distribution but every circuit to address this question has held that such a claim is not preempted by ERISA.

On the claims against Clifford, the court held that Gelschus has standing to sue for breach of contract as a third-party beneficiary of the MTA to enforce the waiver. Gelschus has standing as either the personal representative of Sally’s estate or as the assignee of the siblings’ claims.

Lastly, the court disagreed with the district court that there was no genuine dispute as to whether Sally and Clifford intended for the MTA to waive his beneficiary interest in her 401(k) plan. The court reasoned that the terms of the MTA seem to encompass Clifford’s beneficiary interest, but if it is ambiguous, extrinsic evidence creates a genuine dispute of material fact as to whether they intended for the MTA to waive Clifford’s beneficiary interest. Notably, Sally and Clifford’s divorce was not amicable, and they did not speak for over two decades before her death. She also did attempt to remove him as a beneficiary. This is enough for a jury to find that they intended for the MTA to waive Clifford’s interest. If a jury finds that the MTA did not waive Clifford’s beneficiary interest, the district court must consider whether equity (unjust enrichment) still requires Clifford to give up the benefits. The court reversed summary judgment on the breach of contract and unjust enrichment claims but affirmed summary judgment on the conversion and civil theft claims.