By Robert J. Lowe

The seemingly staid world of retirement plan beneficiary designations was surprised by a recent federal appeals court decision suggesting that a new beneficiary could be designated by a telephone call.

Mr. Williams, an employee of Xerox Corporation, participated in two Xerox retirement plans and designated his wife as his beneficiary. When he got divorced, he decided he wanted his son to be his beneficiary instead of his ex-wife.
On two separate occasions, Mr. Williams called the Xerox benefits center and told them he wanted to designate his son as beneficiary instead of his ex-wife. Both times, the benefits center sent him new beneficiary designation forms to fill out. The forms were received by Mr. Williams but never signed.

Then Mr. Williams died. His ex-wife claimed she was entitled to the retirement benefits because Mr. Williams never signed the beneficiary designation forms naming his son. The son claimed that he should be treated as the beneficiary based on the phone calls. Rather than try to resolve the conflicting claims, the plan administrator interpleaded the ex-wife and son in federal district court so that the court would decide. The federal district court decided in favor of the ex-wife. So, the son appealed the decision to the Ninth Circuit Court of Appeals.

The ex-wife claimed the beneficiary designation forms were “plan documents” which governed the administration of the plan. Under this theory, since Mr. Williams never signed a new beneficiary designation naming his son, the prior beneficiary designation was a plan document that required payment of the benefits to her. The specific decision by the appeals court was that the beneficiary designation was not a plan document setting out the terms of the plan and therefore did not govern the plan administrator’s award of benefits. (A full copy of the decision in the case of Mays-Williams v. Williams can be found here)

Although the plan administrator could have decided who was entitled to the benefits in this case, in which case the courts would have been required to uphold the plan’s decision absent the finding of an abuse of discretion, the plan administrator chose not to decide and to instead leave the decision the court. The court therefore had to make its own independent review of the plan itself and the summary plan description.

The court noted that the plan and the plan summary provided, in accordance with federal law, that a married participant could not designate a beneficiary other than a surviving spouse without a written designation signed by the participant and spouse, but that the plan had no such requirements for unmarried participants. The plan summary instructed unmarried participants to call the Xerox benefits center or visit the Xerox website in order to change or complete a beneficiary designation. Accordingly, the court held: “Nothing in the plan documents prevents unmarried participants from designating beneficiaries by telephone call.”

The appeals court did not decide in favor of the son but rather sent the case back to the district court for a further decision based on the appeals courts findings. Who gets Mr. Williams’ benefits? We won’t know until the district court re-hears the case.