Amicus Curiae Brief — Egelhoff v. Egelhoff

In The

Supreme Court of the United States

¢

DONNA RAE EGELHOFF,

Petitioner,

Vv.

SAMANTHA EGELHOFF, a Minor, by and through

Her Natural Parent Kate Breiner, and DAVID EGELHOFF,

Respondents.

.

On Writ Of Certiorari

To The Supreme Court Of Washington

¢

BRIEF OF THE WESTERN CONFERENCE OF

TEAMSTERS PENSION TRUST FUND AS AMICUS

CURIAE IN SUPPORT OF PETITIONER

S

Russet J. Reip Rosert S. UNGER

MicuHaet R. McCartHy Counsel of Record

Davies Roserts & Reip CHarces A. STORKE

101 Elliot Avenue West, Nicote A. DILer

Suite 550 JENNIFER M. Pettz

Seattle, WA 98119 Trucker @ Huss, APC

(206) 285-3610 120 Montgomery Street,

23rd Floor

San Francisco, CA 94104

(415) 788-3111

Counsel for the Western Conference of

Teamsters Pension Trust Fund as

Amicus Curiae in Support of Petitioner

my yv

TABLE OF CONTENTS

Page

I. STATEMENT OF INTEREST OF THE WEST-

ERN CONFERENCE OF TEAMSTERS PEN-

SED PEE SU cccccsscavecsevanccccess = §

Il. SUMMARY OF THE ARGUMENT........... 2

Be CGE ccccccddedtedsetdssceeccecvsecee § §

A. The Court Should Uphold Congress’ Man-

date to Administer Benefit Plans Pursuant

to a Uniform Body of Federal Law...... 5

1. A Review of the Status of the Law

Among the Fifty States Reveals That

Washington’s Revised Code Section

11.07.010 Only Adds to Conflict..... 5

a. Eight states have enacted their

own statutes directing how plan

fiduciaries should treat spousal

beneficiary designations.......... 6

b. Ten states have adopted the Uniform

Probate Code Section 2-804, but are

divided on the application of several

substantive provisions............. 7

c. State and federal courts impose

WER GEE Gc cccresscscccseses 9

d. California reminds divorcing par-

ties that they may wish to modify

their beneficiary designations.... 12

2. As This Court Has Recognized Many

Times over, Congress Enacted ERISA

to Permit Plan Administration Under

a Uniform Body of Federal Law..... 12

il

TABLE OF CONTENTS - Continued

Page

B. Plan Administrators Have a Compelling

Need for Uniform Administration of Bene-

fit Claims in Accordance with Beneficiary

Designations and Plan Provisions........

1. Complying with Varying State Laws

Would Significantly Complicate the

Distribution of Death Benefits........

2. In Many Instances, Plan Administra-

tors Will Be Unable to Determine the

Controlling Law ..........-.+.eseeees

3. Complying with State Regulation of

Beneficiary Designations Is Costly....

Given That ERISA Mandates How Benefit

Distributions Be Paid, No Federal Com-

mon Law on the Subject Is Necessary ...

1. It Is Inappropriate to Fashion Federal

Common Law Which Overrides the

Terms of an ERISA Plan.............

2. A Federal Common Law Approach Is

Warranted Only Where Established

Common Law Principles Support a

Consistent Rule. .......scccccccccsess

TV. CONCLUSION ...cccccscccccccscccccsccceses

15

15

17

21

22

22

26

TABLE OF AUTHORITIES

Page(s)

Cases

Abex Corp. v. Ski's Enterprises, Inc., 748 F.2d 513

EL ee 20

Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504

EE eee 13

Bank One, Texas, N.A. v. Taylor, 970 F.2d 16 (5th Cir.

CCAP EEEMERRUEGERSNCObESSCE Se cecceceesecceses 20

Boggs v. Boggs, 520 U.S. 833 (1997)............... 11, 21

Br idon v. Travelers Insurance Co., 18 F.3d 1321 (5th

ete on a occ beccéceeees 11, 26, 27

Cisneros v. Unum Life Insurance Co., 134 F.3d 939

(9th Cir. 1998), cert. denied, 526 U.S. 1086 (1999) .... 28

Critchell v. Critchell, 746 A.2d 282 (D.C. 2000) ........ “

Dial v. NFL Player Supplemental Disability Plan, 174

i ee rc eee end ccteneeeesscssce 26

Duncan v. Investors Diversified Services, Inc., 330

ne et se cec ee ceceeebeesencesce 10

Emmens v. Johnson, 923 S.W.2d 705 (Tex. App.

eet etbhGehebeeeeeeceececcesceecececece 11

Estate of Altobelli v. International Business Machines

Corp., 77 F.3d 78 (4th Cir. 1996)................ 21, 22

Estate of Bowden v. Aldridge, 595 A.2d 396 (D.C.

PA SRORCESEREERGEOSOR65665000000000000. 10

Neen a cunbuvedancence 23

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987). .13, 21

iV

TABLE OF AUTHORITIES — Continued

Page

Fox Valley & Vicinity Comstruction Workers Pension

Fund v. Brown, 897 F.2d 275 (7th Cir. 1990)..... 26, 27

Frederick v. Frederick, 687 A.2d 711 (N.H. 1996)...... 10

Guardian Life Ins. Co. of America v. Madole, 58

F. Supp. 2d 26 (D.D.C. 1999)... 0.6... cece eee eens 9

Hill v. A T & T Corp., 125 F.3d 646 (8th Cir. 1997) .... 23

In re Estate of Lanken, 676 A.2d 190 (N.J. Super. Ct.

GP. GI Fa 0c cc ciccncctcccncnitesceesecessccccs 10

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133

SED co ntnonscnsusccedcdbuneebeueeahuuecus 11, 12, 13

John Hancock Mut. Life Ins. v. Timbo, 67 F. Supp. 2d

GED Gee TROD wc ccncceccnedaeveessecetescsseses 23

Krishna v. Colgate Palmolive Co., 7 F.3d 11 (2nd Cir.

FRED s v ccviccencccccccsnscouausu's cananesseoneuewen 22

Lyman Lumber Co. v. Hill, 877 F.2d 692 (8th Cir

SOEs c cecccccncousvcccuscduesucetsaemasnonecs mean 23

Manning v. Hayes 212 F.3d 866 (5th Cir. 2000)...... 11

McMillan v. Parrott, 913 F.2d 310 (6th Cir. 1990)

$isutennemasedenheten deiesiededseeaaee 10, 25, 26

Mertens v. Hewitt Associates, 508 U.S. 248 (1993) ..24, 27

Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904

CR Gis 0060s csncncccsevesacussnens 9, 10, 26

Metropolitan Life Ins. Co. v. Marsh, 119 F.3d 415 (6th

GO Benes wkedsdunccnanesstweeusnckenesesnnst 25

Metropolitan Life Ins. Co. v. Pearson, 848 F. ee.

SOE GIs vicwccecutinudscvccesensecs 10

v

TABLE OF AUTHORITIES - Continued

Page

Metropolitan Life Ins. Co. v. Pettit, 164 F.3d 857 (4th

Ge SOUND Recncescevesceninesscdcecnnesbecsboncene 22

Metropolitan Life Ins. Co. v. Pressley, 82 F.3d 126

Es CD EL hile: ouneupeulacnaeubudmaeaaeadaee 10, 26

Metropolitan Life Ins. Co. v. Walsh, 892 F. Supp. 671

Gee CO Ge sco neccddccceccvecdsschcneesawell 9, 10

Mohamed v. Kerr, 53 F.3d 911 (8th Cir. 1995)..19, 20, 26

Nachwalter v. Christie, 805 F.2d 956 (11th Cir. 1986) .... 24

National Automobile Dealers and Associates Retire-

ment Trust v. Arbeitman, 89 F.3d 496 (8th Cir.

a a ll 19, 20

New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645

S602 <0 de udiahensdcousscousscensucanieecoued 14

Pilot Life v. Dedeaux, 481 U.S. 41 (1987).............. 27

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)...11, 13

Trustees of Iron Workers Local 451 Annuity Fund v.

O’Brien, 937 F. Supp. 346 (D. Del. 1996)........... 23

STATUTES

ED 0 cc ep cocawerccecescesecusencevenset 1

29'US.C. § 1002(2), ERISA § SZ) ...............25-5- 1

29: U.S.C. § 1002(37), ERISA § 3(37).................. 1

29 U.S.C. § 1056(d)(3), ERISA § 206(d)(3)............ 15

29 U.S.C. § 1103(c)(1), ERISA § 403(c)(1) ............ 21

29 U.S.C. § 1104(a)(1)(D), ERISA § 404(a)(1)(D)

PONE wRS UM CURRED reSSeeDeeseudueeesed 4, 24, 25, 26

vi

TABLE OF AUTHORITIES - Continued

Page

BOER. GB ADG6, GHA ] FOG... ccc cccccvcccwcccces 3

Retirement Equity Act of 1984, Pub. L. No. 98-397,

EE on cccctcscoccens ces cuedecusbege seyeel 29

Cac. Fam. Cope § 2024(b) (2000)..................+... 12

Mo. Rev. Stat. § 461.051 (1999)... ... 2... eee eee nes 7

Ono Rev. Cove § 1339:63 (2000)........ 2.62.26 eee eee 6

Ouna. Sear. tit. 15, G B78 (ORPR) ... . 2. ec cee es . 6

20: Pa. Gows. Star. $:GEBL.2 (BBDS) .. .. cece eee 6

Tex: Fammuy Cove § 9:301 (2000) .............. cece eees 6

Tex. Fammy Cove § 9.302 (2000) .............-2 cee eees 6

Utan ‘Come § 30-3-7.5 (1999)................. write dell 6

is cn veswcmccvvccccccccccccunwecens 6

Va» Come 6 BB25R05 (OGGD) ... 2... cece cc eee c ce eeee 6

Was. Rew. Cone § 12.02,005(15)..................4-. 18

Wass. Rev. Cope § 11.07.010 .......... ..3, 9, 18, 21, 22

Wasw. Rev. Cope § 11.07.010(2)(a) ................... 18

Wase. Rev. Cope § 11.07.010(5)................--.-.- 18

Wasn: Rev. Cope § 11.11.010(7)(a) ................... 18

Wash: Rev: Comoe § 11.11.010(7)(®) ................... 18

OTHER AUTHORITIES

Tee 13

er GT, ZO GEOED os cvvcccccceserrsceevsees 13

Vii

TABLE OF AUTHORITIES - Continued

Page

Unir. Pros. Cope § 2-804 (1998) .................05. 8, 9

Unir Pros. Cove § 2-804(h)(2) (1998)................ 8,9

1

I. STATEMENT OF INTEREST OF THE WESTERN

CONFERENCE OF TEAMSTERS PENSION TRUST

FUND

The Western Conference of Teamsters Pension Trust

Fund (the “WCT Fund”)! submits this brief to urge the

Court to reverse the decision of the Washington Supreme

Court in the matter of Egelhoff v. Egelhoff.?

The WCT Fund is a jointly administered trust main-

tained pursuant to Section 302(c) of the Labor Manage-

ment Relations Act, 20 U.S.C. § 186(c). The WCT Fund

administers the Western Conference of Teamsters Pension

Plan (the “WCT Plan”), an employee pension benefit plan

under Section 3(2) of the Employee Retirement Income

Security Act of 1974, as amended (“ERISA”), 29 U.S.C.

§ 1002(2), and a “multiemployer plan” as defined in

Section 3(37) of ERISA, 29 U.S.C. § 1002(37).

The WCT Plan has participating employers located in

thirteen western states? and, as of the end of last year,

over 239,650 active plan participants. In addition, the

WCT Plan has nearly 300,000 inactive participants and

beneficiaries spread amongst all fifty states, the District

! To avoid duplication of argument, counsel for the WCT

Fund exchanged drafts of briefs with Petitioner and some amici

in the course of preparing this brief. While having considered

the comments of those sources, counsel for the WCT Fund were

the sole authors of this brief and no person or entity other than

the WCT Fund made a monetary contribution to the brief’s

preparation or submission. As of July 10, 2000, counsel for all

parties gave their blanket consent to the filing of amicus briefs

in this matter.

2 989 P.2d 80 (1999).

3 Those thirteen states are Alaska, Arizona, California,

Colorado, Idaho, Hawaii, Montana, New Mexico, Nevada,

Oregon, Utah, Washington, and Wyoming.

2

of Columbia, several U.S. territories, and foreign coun-

tries.

The WCT Fund has paid over 23,000 death benefit

claims in the last three years.* The terms of the WCT Plan

provide that the WCT Fund will pay these claims in

accordance with a beneficiary designation card on file, a

designation contained in an application for retirement

benefits, or, if neither exists, pursuant to the beneficiary

preference provisions of the WCT Plan. Thus, the WCT

Plan administrators have a clear method for paying death

benefits and complying with ERISA’s mandate that a plan

be administered according to the terms of its governing

documents and instruments.

Given the WCT Plan’s nationwide provision of bene-

fits, the WCT Fund has a great stake in the outcome of

Egelhoff v. Egelhoff. In particular, Egelhoff held that the

Washington Legislature could nullify an ERISA-governed

plan participant's beneficiary designation, despite a con-

flict between the terms of the Washington law and an

employee benefit plan. If allowed to stand, Egelhoff will

impede the ability of the WCT Fund to administer the

WCT Plan.

Il. SUMMARY OF THE ARGUMENT

It is widely recognized that one of Congress’ central

aims in enacting ERISA was to provide a uniform body of

federal law to regulate employee benefit plans. A confus-

ing patchwork of conflicting statutory and common law

directives relating to the treatment, after divorce, of a

spousal beneficiary designation made by a plan partici-

pant during marriage threatens that goal. The state stat-

ute pivotal to this case, Washington’s Revised Code

4 Since the inception of the Plan, there have been 151,702

claims for payment of death benefits.

ER Qewee~ on oe

3

Section 11.07.010, is but one example. It generally pro-

vides that a spousal beneficiary designation becomes

ineffective upon divorce, and directs ERISA plan admin-

istrators to treat the former spouse as if he or she had

predeceased the participant.

Section 11.07.010 and similar statutes are apparently

based on the assumption that plan participants will not

remember to modify their beneficiary designations after

divorce, and that it is appropriate for state legislatures to

do it for them. The WCT Fund questions both premises.

The WCT Fund believes that the concerns that form the

basis for statutes like Washington Revised Code Section

11.07.010 can be adequately addressed by simply urging

participanis to change their beneficiary designations

upon divorce.

California, for example, has enacted a statute that

requires courts, upon the issuance of a divorce decree, to

remind plan participants to change their beneficiary des-

ignations following divorce if they so desire. This law

does not require any modification of existing employee

benefit plan administration practices. In addition, it per-

mits participants to control the fate of their benefits, and

does not nullify beneficiary designations that the partici-

pants may have, in fact, intended. The WCT Fund sub-

mits that the California approach embodies an

uncomplicated solution to the concern at which the Wash-

ington statute is aimed.

In any event, laws purporting to invalidate benefici-

ary designations violate ERISA’s substantive provisions.5

Among other things, ERISA commands the fiduciaries of

5 Such state laws also impermissibly relate to, and seek to

govern the administration of, employee benefit plans, thereby

falling within ERISA’s preemptive sweep See ERISA § 514, 29

U.S.C. § 1144. The WCT Fund does not brief the preemption

issues here, presuming that the parties’ briefs will address this

topic at length.

4

an employee benefit plan to administer the plan in accor-

dance with the terms of the documents and instruments

governing it. ERISA § 404(a)(1)(D), 29 U.S.C.

§ 1104(a)(1)(D). Statutes directing a fiduciary to provide

benefits to someone other than a designated beneficiary

fly in the face of this requirement by requiring the fiduci-

ary to overlook both the beneficiary designation and the

distribution procedures set forth in the plan.

Furthermore, requiring plan fiduciaries to distribute

a participant’s interest according to rules established by

varying jurisdictions would increase the complexity of

plan administration, thereby making day-to-day adminis-

tration more costly. Particularly in the case of multi-state

plans like the WCT Plan, regulating the distribution of

benefits in a manner that varies depending on which

jurisdiction governs that distribution would preclude

efficient administration of employee benefit plans. Juris-

dictions’ different legal requirements would require the

management of a single plan according to inconsistent

rules. Substantive regional variances would present con-

tinual choice of law dilemmas every time claimants of

different jurisdictions compete for the same benefits.

These issues would require an increased role from plan

counsel, adding to the costs of plan administration and

clogging courts with ever more frequent interpleader

actions. There are only two methods of paying these

additional costs: either employers absorb them as the

price of electing to provide benefit plans, or, participants

bear them in the form of reduced benefits and plan

reserves.

Given ERISA’s mandate to administer plans in accor-

dance with their governing documents and instruments,

“federal common law” need not, and should not, be

fashioned to address the impact of divorce on beneficiary

designations, particularly since efforts to create federal

5

common law have differed from state to state resulting in

anything but a uniform federal law.

Ill. ARGUMENT

A. The Court Should Uphold Congress’ Mandate

to Administer Benefit Plans Pursuant to a Uni-

form Body of Federal Law

1. A Review of the Status of the Law Among

the Fifty States Reveals That Washington’s

Revised Code Section 11.07.010 Only Adds

to Conflict

While Respondents downplay the prevalence of con-

flicting laws concerning the validity of an ERISA plan

participant’s beneficiary designation,® a survey of the

status of the law within the fifty states reveals that the

law on the books differs greatly from state to state.

Including Washington, at least seventeen states have

enacted statutes relating to the impact of divorce on

beneficiary designations made during marriage.

Numerous state and federal courts in those jurisdictions

and others have grappled with the issue, often leading to

yet further directives. In the end, fiduciaries of multi-

state plans currently face up to a dozen different

approaches to the situation, a number that is likely to

_ increase if state regulation of beneficiary designations is

approved by this Court.

© See Respondents’ Brief in Opposition to Petition for Writ

of Certiorari at pages 5 and 6.

6

a. Eight states have enacted their own stat-

utes directing how plan fiduciaries

should treat spousal beneficiary desig-

nations

A number of states have enacted statutes regarding

the treatment of spousal beneficiary designations upon

divorce. The statute central to this case, Washington’s

Revised Code Section 11.07.010, purports to require plan

fiduciaries to treat the designated beneficiary as if he or

she had predeceased the former spouse, subject to certain

exceptions.? Ohio, Oklahoma, Pennsylvania, Utah, and

Virginia have enacted similar laws. See Ou1o Rev. Cope

§ 1339.63 (2000); Oxia. Start. tit. 15, § 178 (1999); 20 Pa.

Cors. Stat. § 6111.2 (1999); Utan Cope § 30-3-7.5 (1999);

Va. Cope §§ 20-111.1 and 38.2-305 (2000).

Texas and Missouri each take a different approach.

Texas has two statutes, both of which require plan fiduci-

aries to treat the beneficiary designation of a spouse as

ineffective, and to instead pay the proceeds to either the

contingent beneficiary or, if no such beneficiary exists,

the participant’s estate. Tex. Famiry Cope §§ 9.301 and

9.302 (2000). In so doing, Texas’ legislature has not only

invalidated the participant’s beneficiary designation, but

has also overridden benefit plans’ preference schemes,

delineating the distribution of benefits where the partici-

pant leaves no validly designated beneficiary.

Unlike Texas, Missouri revokes beneficiary designa-

tions upon divorce, but does not name the alternate recip-

ient, instead requiring only that the former spouse be

7 The main exception permits divorce decrees to explicitly

provide for a spousal beneficiary designation, in which case the

designation remains valid. This exception, and others like it in

similar statutes, would require plan administrators to analyze

the precise language of divorce judgments to ensure compliance

with the statute’s stated exceptions.

7

treated as if he or she disclaimed the designation. Mo.

Rev. Stat. § 461.051 (1999).

The seemingly small difference between Texas’ and

Missouri’s statutes may mandate diverse results in a sin-

gle factual scenario. Under the WCT Plan, if no validly

designated beneficiary survives the participant, benefits

must be paid according to the WCT Plan’s preference

scheme - a system in which the estate of the participant

ranks last in order of preference. However, observing

Texas’ statute would result in the participant’s estate

being the first resort where there exists no contingent

beneficiary designation. Thus, whether a statute defers to

a plan’s preference system (like Missouri's) or identifies

the alternate disposition of the assets (like Texas’) can

alter the recipient of the benefits. As a result, such provi-

sions may mandate distributions contrary to the intent

and expectations of the plan sponsors and participants. In

any event, the divergent state laws will complicate plan

administration.

b. Ten states have adopted Uniform Pro-

bate Code Section 2-804, but are divided

on the application of several substan-

tive provisions

While the Uniform Probate Code (the “UPC”) was

designed years ago in an effort to create uniformity

among the states on the treatment of certain assets upon

death, only a fraction of the states have enacted it. With

only one-fifth of the states having adopted some form of

8 The WCT Plan’s preference system provides that, in the

event a vested participant dies with no valid beneficiary

designation on file, the participant’s beneficiary will be the

survivor(s) in the first class among the following: 1) surviving

spouse; 2) children; 3) parents; 4) siblings; and 5) estate.

8

UPC Section 2-804, to denominate it as a “uniform” act is

a misnomer. Moreover, where adopted, state legislatures

have almost invariably modified the model provisions.

The portion of the UPC that relates to the issue

before the Court is found in Article 2 at Section 804. It

provides that, unless stated otherwise in the parties’ dis-

solution judgment or the “governing instrument” itself,

divorce will cause the former spouse to be treated as if he

or she has disclaimed the beneficiary designation. UNir.

Prosate Cove § 2-804 (1998). Only nine states have

enacted this section of the UPC or some form of it,

though Wisconsin has enacted a virtually identical stat-

ute, while not referencing the UPC.

While the model statute appears straightforward, the

ten states that have adopted it have done so in no fewer

than four different ways. In short, the states adopting

Section 2-804 have ensured that the provisions of the UPC

are, in reality, anything but uniform.

The core difference between the various enactments

centers on a subparagraph of the UPC, Section

2-804(h)(2). Section 2-804(h)(2) directs that, in the event

that a federal law is found to preempt the UPC rules for

the disposition of specified assets (including employee

benefit plan benefits), the party entitled to receive an

asset under the federal law must pay its value “to the

person who would have been entitled to it were this

section or part of this section not preempted.” Unir. Pro-

BATE Cope § 2-804(h)(2).

Michigan, South Dakota, Colorado, and New Mexico

have adopted the subparagraph of Section 2-804 on pre-

emption as set forth in the UPC, while Alaska, Arizona,

and Wisconsin have all adopted the bulk of Section 2-804

without including the preemption paragraph. North

Dakota and Montana, in contrast, adopted a modified

version of Section 2-804(h)(2), specifically excepting

9

ERISA from its ambit. Finally, Utah stands on its own; it

enacted both Section 2-804 (including Section

2-804(h)(2)), as well as a separate statute directing plan

fiduciaries to treat a designated former spouse as prede-

ceasing the plan participant.

c. State and federal courts impose yet

other rules

In addition to these myriad statutory requirements

imposing diverse obligations on plan fiduciaries, a

number of courts have enunciated different requirements,

sometimes conflicting even with statutory provisions

enacted in the geographic region in which the court sits.?

Generally speaking, state courts considering this

issue base their decisions on contract and insurance prin-

ciples, usually finding that divorce alone does not revoke

* For instance, in Metropolitan Life ins. Co. v. Hanslip, 939

F.2d 904 (10th Cir. 1991), the Tenth Circuit held that ERISA

preempts an Oklahoma statute similar to Washington Revised

Code Section 11.07.010. However, the fact that the Oklahoma

statute, Title 15, Section 178, remains on the books creates a

distinct possibility that an Oklahoma state court may find the

statute is not preempted or choose to fashion “federal common

law.” Thus, a plan administrator in Oklahoma faces potential

liability for following either approach. Administrators in some

other jurisdictions are similarly beset. Compare Guardian Life Ins.

Co. of America v. Madole, 58 F. Supp. 2d 26 (D.D.C. 1999) (ERISA

preempts the District's law purporting to regulate the

designation of a life insurance policy), with Critchell v. Critchell,

746 A.2d 282 (D.C. 2000) (ERISA does not preempt the District's

marital property law relating to a spouse’s waiver of interest in

pension plan). Compare also Pennsylvania's statute, Title 20,

Section 6111.2 (divorce revokes beneficiary designations made

during marriage in favor of spouse), with the common law

decision Metropolitan Life Ins. Co. v. Walsh, 892 F. Supp. 671 (W.D.

Pa. 1995) (ERISA preempts state law purporting to regulate

beneficiary designation).

10

a spousal beneficiary designation “absent convincing evi-

dence that [a property settlement] was intended to

deprive the named beneficiary of that interest.” Estate of

Bowden v. Aldridge, 595 A.2d 396, 396 (D.C. 1991); see also

Frederick v. Frederick, 687 A.2d 711 (N.H. 1996); Duncan v.

Investors Diversified Services, Inc., 330 S.E.2d 295, 296 (S.C.

1985). An exception is New Jersey, where courts have

held that a marital settlement agreement with a mutual

release of all claims creates a presumption that the parties

waived their rights under pre-existing designations. See

In re Estate of Lanken, 676 A.2d 190 (N.J. Super. Ct. Ch.

Div. 1996).

While some federal courts agree with the state com-

mon law approach, others do not. The Sixth Circuit, for

instance, has held that ERISA Section 404(a)(1)(D) -

which requires fiduciaries to manage plans in accordance

with its governing documents and instruments — itself

supplies the rule of law and mandates that fiduciaries

pay the benefits to the beneficiary designated by the

participant. See Metropolitan Life Ins. Co. v. Pressley, 82

F.3d 126, 130 (6th Cir. 1996); McMillan v. Parrott, 913 F.2d

310, 311 (6th Cir. 1990). The Tenth Circuit is in accord,

holding in Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d

904 (10th Cir. 1991), that ERISA preempts an Oklahoma

statute purporting to require plan fiduciaries to treat a

designated former spouse as predeceasing the partici-

pant, and instead requires payment of the benefits to the

designated beneficiary. See also Metropolitan Life Ins. Co. v.

Walsh, 892 F. Supp. 671 (W.D. Pa. 1995). But see Metro-

politan Life Ins. Co. v. Pearson, 848 F. Supp. 1326 (E.D.

Mich. 1994) (holding that ERISA does not preempt Michi-

gan family law and applying the Michigan revocation-by-

divorce statute).

Yet another approach adopted by some courts is to

first find that ERISA preempts state law, but to then look

11

to state statutes to fashion federal common law rather

than finding the answer in ERISA itself. See Brandon v.

Travelers Insurance Co., 18 F.3d 1321, 1326 (5th Cir. 1994),

(where the federal court looked to a Texas statute to

fashion federal common law, but declined to adopt the

state statute on a “wholesale” basis, instead modifying

“the adoption of state law to require that any waiver be

voluntary and in good faith”) and Manning v. Hayes, 212

F.3d 866 (Sth Cir. 2000) (same). But see Emmens v. Johnson,

923 S.W.2d 705, 712 (Tex. App. 1996) (refusing to follow

the Brandon “federal common law” and instead adopting

Texas statutory law and calling it “federal common

law”).2°

As discussed below, these many conflicting directives

have created the precise situation that Congress, in enact-

ing ERISA, sought to prevent: the development of differ-

ent substantive standards applicable to the same conduct.

As this Court held in Ingersoll-Rand Co. v. McClendon,

“[s]uch an outcome is fundamentally at odds with the

goal of uniformity that Congress sought to implement.”?!

498 U.S. 133, 142 (1990).

10 Thus, while both state and federal courts in Texas

purport to apply “federal common law,” the test used is

different, such that who will receive benefits might well turn on

whether a case is filed in a state or federal court.

11 While Ingersoll-Rand focused on potential differences in

requirements governing employer conduct, the issue here is

even more central to ERISA - a plan administrator's ability to

ensure the provision of benefits to participants and beneficiaries

in accordance with the instruments controlling the plan. See,

e.g., Boggs v. Boggs, 520 U.S. 833, 845 (1997) (ERISA’s “principal

object . . . is to protect plan participants and beneficiaries”);

Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983) (“ERISA is a

comprehensive statute designed to promote the interests of

employees and their beneficiaries in employee benefit plans”)

(citations omitted).

12

d. California reminds divorcing parties

that they may modify their beneficiary

designations

Instead of adding to the conflicting directives, Cali-

fornia has chosen to take aim at the source of the issue -

the plan participant. California’s mandatory form Judg-

ment of Dissolution instructs parties to review any bene-

ficiary designations to determine if changes should be

made. Cat. Fam. Cove § 2024(b) (2000). Thus, instead of

enacting a statute regulating the treatment of existing

spousal beneficiary designations after divorce, California

attempts to overcome any possibility of distributing bene-

fits to an unintended beneficiary by apprising partici-

pants that they may modify designations if they wish.

The WCT Fund believes that the California method of

addressing the concern of a potentially unwanted dispo-

sition of plan assets is the best approach. Such a tech-

nique neither infringes on ERISA’s uniform regulation of

employee benefit plans nor imposes any additional bur-

den on plan administrators. This approach also ensures

that plan participants who wish to modify designations

are reminded to do so, but does not invalidate what may

be a considered choice by a participant to retain a former

designation.

2. As This Court Has Recognized Many Times

over, Congress Enacted ERISA to Permit

Plan Administration Under a Uniform Body

of Federal Law

This Court has repeatedly confirmed that Congress

enacted ERISA to ensure that plan sponsors and adminis-

trators could administer employee benefit plans in accor-

dance with a uniform body of governing law. See, ¢.g.,

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990)

(“Section 514(a) was intended to ensure that plans and

13

plan sponsors would be subject to a uniform body of

benefits law”); Shaw v. Delta Air Lines, Inc., 463 U.S. 85,

105 (1983) (“[b]y establishing benefit plan regulation ‘as

exclusively a federal concern,’ Congress minimized the

need for interstate employers to administer their plans

differently in each State in which they have employees”)

(citations omitted); Fort Halifax Packing Co. v. Coyne, 482

U.S. 1, 11 (1987) (“Congress intended preemption to

afford employers the advantages of a uniform set of

administrative procedures governed by a single set of

regulations”); Alessi v. Raybestos-Manhattan, Inc., 451 U.S.

504, 523 (1981) (ERISA’s preemption clause was designed .

to “establish pension plan regulation as exclusively a

federal concern”). Congress’ aim was geared towards

minimizing “the administrative and financial burden of

complying with conflicting directives among States or

between States and the Federal Government... , [and

preventing] the potential for conflict in substantive law

.. . requiring the tailoring of plans and employer conduct

to the peculiarities of the law of each jurisdiction.” Inger-

soll-Rand Co. v. McClendon, 498 U.S. at 142.

Legislative history underscores the importance of the

federalization of benefit regulation to the sponsors of

ERISA. In introducing the bill to Congress, sponsors

described the “crowning achievement” of the Act as its

assurance of consistent administration of employee bene-

fit plans across the country. 120 Conc. Rec. 29197 (1974).

As Representative Dent of the House of Representatives

put it, preemption “round|[s] out the protection afforded

participants by eliminating the threat of conflicting and

inconsistent state and local regulation.” Id.; see also id. at

29933 (“the substantive and enforcement provisions

14

... are intended to preempt the field for federal regula-

tions, thus eliminating the threat of conflicting or incon-

sistent state and local regulation of employee benefit

plans”).

Against this backdrop, this Court has concluded that

“the basic thrust of the pre-emption clause, then, was to

avoid a multiplicity of regulation in order to permit the

nationally uniform administration of employee benefit

plans.” New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 657 (1995).

To achieve this end, ERISA requires the preemption of all

“state laws that mandate[ |] employee benefit structures or

their administration.” Id. at 658.

In this case, upholding the Washington legislat: ze’s

regulation of the validity of beneficiary designations

would undermine ERISA’s aim to create a single, uniform

body of law governing the administration of employee

benefit plans. The effect would be to subject plan spon-

sors to laws varying from locale to locale. Observing the

various laws would, in turn, require plan fiduciaries to

engage in complex, time-consuming efforts to determine

the distribution mandated by the law at issue.!2 Even

setting aside cost considerations, such a scheme proves

essentially unworkable for multi-state plans. As dis-

cussed below, a patchwork of laws purporting to govern

12 Although the WCT Fund reviewed the laws of the fifty

states in connection with this brief, that undertaking proved to

be both difficult and expensive. While the WCT Fund had the

resources to enable it to do so, many of the problems identified

in this brief are not limited to large trusts. Small trusts, whose

plans are often administered by outside consultants and

secretaries, do not have the tools to locate, interpret and apply

the laws of every state to which participants or beneficiaries

may relocate.

15

beneficiary designations would subject fiduciaries to con-

flicting obligations - sometimes even with regard to the

same benefit payment - exposing the plan to potential

liability regardless of the course chosen by its administra-

tor.

B. Plan Administrators Have a Compelling Need

for Uniform Administration of Benefit Claims

in Accordance with Beneficiary Designations

and Plan Provisions

The current hodgepodge of legal requirements vary-

ing from state to state threatens to require the administra-

tor of a multi-state benefit plan to manage the plan

according to an assortment of requirements.'°

1. Complying with Varying State Laws Would

Significantly Complicate the Distribution

of Death Benefits

Currently, the distribution of death benefits under

the WCT Plan is a relatively simple process. For cases in

13 While plan administrators currently follow the terms of

Qualified Domestic Relations Orders (“QUROs”) issued by state

courts, ERISA Section 206(d)(3), 29 U.S.C. § 1056(d)(3), sets forth

a single, uniform set of requirements for such orders. Those

qualification requirements are generally easy to ascertain,

making compliance with QDROs far easier than compliance

with varying beneficiary designation laws. One of the

difficulties in trying to follow the varying state laws is that the

plan administrator will frequently be forced to prove the

existence of a negative — that the participant was not a party toa

divorce. Proving any negative is inherently fraught with

difficulty. Here, the difficulty is particularly acute because a

plan administrator would be hard pressed to independently

confirm a participant’s marital history. QDROs, on the other

hand, do not present this problem because they must be served

on the employee benefit plans to which they relate.

16

which the WCT Fund has a beneficiary designation card

on file at the time of the participant's death, most death

benefits are processed in the following three simple steps:

e One or more claimants send the WCT Fund an

application for the death benefits.

¢ The WCT Fund determines which claimant is the

participant’s designated beneficiary by asking the claim-

ant(s) to produce birth certificates or other identity

records.

e The WCT Fund pays benefits to the designated

beneficiary.

If this Court condones state regulation of the validity

of a participant's beneficiary designation, the processing -

of death benefits will be significantly more complex. At a

rate of over 7,000 applications per year,'4 the WCT Plan’s

administrators will need to undertake several additional

steps to determine the proper recipient of the partici-

pant’s death benefits. The distribution process would

include:

e One or more claimants would send the WCT Fund

an application for the death benefits.

e The WCT Fund would determine which claimant

is the participant’s designated beneficiary by asking the

claimant(s) to produce birth certificates or other identity

records.

e The WCT Fund would query each claimant

whether that claimant, or any other claimant, was ever

married to the participant, and if so, whether the mar-

riage terminated in divorce.

e Where the participant was a party to a divorce,

the WCT Fund would obtain a copy of the divorce decree

and any related orders or agreements.

4 In the past three years alone, beneficiaries submitted

over 23,000 claims for death benefits under the WCT Plan.

17

e The WCT Plan’s counsel would determine what

jurisdiction governs the claim and research, or update

research, on the applicable law to determine the effect of

divorce on the participant's beneficiary designation. (If

counsel cannot make a certain determination of which

jurisdiction controls, the WCT Fund would file an inter-

pleader action.)

e Depending on the jurisdiction, the WCT Fund

would evaluate whether the divorce documents evidence

a clear and convincing waiver by the former spouse of his

or her rights as the designated beneficiary. (If the exis-

tence of waiver is ambiguous, the WCT Fund would file

an interpleader action.)

e The WCT Fund would determine whether the

beneficiary designation remains effective under applica-

ble state law or federal common law. (If the validity of the

beneficiary designation is ambiguous, the WCT Fund

would file an interpleader action.) If the beneficiary des-

ignation is valid, the WCT Fund pays the death benefit.

e If the applicable law invalidates the designation,

the WCT Fund would determine what alternate disposi-

tion of the benefits the governing law requires. (If the

WCT Fund cannot determine the alternate disposition

with certainty, the Fund would file an interpleader

action.) If the statute clearly identifies the alternate dispo-

sition of the death benefits, the WCT Fund would pay the

benefits accordingly.

2. In Many Instances, Plan Administrators

Will Be Unable to Determine the Control-

ling Law

Unfortunately, many of the steps required for a dis-

tribution pursuant to state laws would entail determina-

tions that would often be difficult, if not impossible, for a

plan administrator to make with certainty. For example,

18

when potential claimants reside in different jurisdictions

or where the participant divorced in one state and died in

another, resolution of the choice of law issues will be

extremely complex.

Determining the scope and requirements of the laws

can pose additional hurdles. For instance, Washington

Revised Code Section 11.07.010 has been amended twice

since its enactment in 1993 and, while the Washington

Supreme Court found that the amendments were not

relevant to this case, that conclusion requires a compli-

cated legal analysis. Requiring such analysis would

impose undue burden and expense on ERISA plans cov-

ering residents of multiple states. Worse, the ambiguities

in such laws make a totally risk-free determination

impossible. '5

Beyond the problems caused by jurisdictions employ-

ing different tests to determine the impact of divorce

1S For example, upon reading amended Washington

Revised Code Section 11.07.010(2)(a), which applies only to

“nonprobate assets,” the plan’s counsel must make a threshold

determination of whether benefits under the plan constitute

nonprobate assets subject to the statute’s reach. The Washington

Code, however, contains three different versions of this critical

definition, two of which have been repeatedly amended in the

seven years since the enactment of Section 11.07.010. See Wasn.

Rev. Cope § 11.07.010(5); Wasn. Rev. Cope § 11.02.005(15); and

Wasu. Rev. Cope § 11.11.010(7)(a) and (b). One of these

definitions, Section 11.07.010(5), limits the employee benefit

plan assets within its scope to those payable pursuant to a

“payable-on-death provision of a life insurance policy,

employee benefit plan, annuity or similar contract, or

individual retirement account. ...” The inclusion of Egelhoff’s

401(k) distribution does not neatly fall into the denotation of a

“payable-on-death provision,” presenting the plan

administrator with a judgment call.

19

upon a beneficiary designation, the situation is exacer-

bated by courts’ consideration of the parties’ underlying

relationship in assessing the pivotal issues. Courts which

have engaged in such subjective analyses make clear that

no plan administrator can reliably predict who is entitled

to receive plan benefits.

For example, in Mohamed v. Kerr, 53 F.3d 911 (8th Cir.

1995), the Eighth Circuit explained that a property settle-

ment agreement may effectively revoke a beneficiary des-

ignation, provided the agreement specifically divests the

former spouse’s rights as a plan beneficiary. However,

having announced that rule, Mohamed examined not only

the terms of the divorce agreement, but also the facts

surrounding the divorce, finding the facts “especially

compelling.” Id. at 916. Mohamed notes that the former

wife (and designated beneficiary) left her husband as a

result of his being diagnosed with Alzheimer’s disease.

“Once [the husband] was diagnosed with the disease,

[the wife] could not get away fast enough, and she never

looked back. We do not believe it is putting too fine a

point on it to say that she abandoned him to his illness.”

Id. Mohamed then holds that the wife had waived any

claim she might have had to plan benefits. Id.

In contrast to Mohamed is National Automobile Dealers

and Associates Retirement Trust v. Arbeitman, 89 F.3d 496

(8th Cir. 1996). Arbeitman acknowledged that the lan-

guage in the divorce agreement before it was similar to

that in Mohamed. Arbeitman, 89 F.3d at 501. However,

equitable considerations led to a different result. In par-

ticular, Arbeitman noted that the husband and wife “main-

tained an amicable relationship” and that the husband

paid more spousal and child support than he was legally

obligated to provide. Id. The Eighth Circuit describes this

as a “vastly different situation than we faced in

Mohamed,” and held that the divorce agreement did not

20

waive the wife’s rights as the designated plan beneficiary.

Id.

As Mohamed and Arbeitman demonstrate, regardless

of whether one believes the respective decisions correctly

balanced the equities and circumstances in the two cases,

such a subjective approach requires a plan administrator

to do more than research the law. The administrator must

also conduct an investigation of the facts and circum-

stances surrounding a divorce. This makes efficient plan

administration impossible.

Where resolution of a particular issue is ambiguous,

actions taken by the administrator would expose a plan

to a risk of having to pay the benefit to more than one

person, thereby making it prudent to interplead the mat-

ter and have a court resolve the issue. Filing interpleader

lawsuits, however, is not a panacea. While attorneys’ fees

are ostensibly available to a plaintiff initiating an inter-

pleader suit,'* in cases involving a relatively small bene-

fit, the recovery of attorneys’ fees from the stake could

consume the entire benefit. As a practical matter, the plan

administrator may be required to charge the expenses to

the plan or the plan sponsor rather than recover them

from the benefit. In addition, interpleader lawsuits

require the claimants to retain counsel, creating addi-

tional expenses that may dwarf the benefit at issue. In the

end, filing an interpleader lawsuit can, in effect, sacrifice

the contested benefit.

16 Courts have discretion to award attorney fees to a

disinterested stakeholder in an interpleader action under their

inherent equitable powers. See, e.g., Abex Corp. v. Ski's

Enterprises, Inc., 748 F.2d 513, 516 (9th Cir. 1984); Bank One,

Texas, N.A. v. Taylor, 970 F.2d 16, 22 (Sth Cir. 1992).

a ee

le ee es Sa SR Ee Te ee ee ee

21

3. Complying with State Regulation of Bene-

ficiary Designations Is Costly

As the discussion above reflects, if ERISA plan

administrators are put to the task of having to examine

state laws whenever making a distribution, they will

routinely need to hire legal counsel to locate and inter-

pret these statutes and file interpleader suits.

Only two choices exist to fund the changes: either

employers bear the brunt of the increased costs of admin-

istering benefit plans, or the additional expenses will be

borne by the plan’s participants and beneficiaries in the

form of reduced benefits and/or lowered plan reserves.

To the extent that the employers are saddled with the

additional costs, those increases may well “lead those

employers with existing plans to reduce benefits, and

those without such plans to refrain from adopting them.”

Estate of Altobelli v. International Business Machines Corp.,

77 F.3d 78, 83 (4th Cir. 1996) (Wilkinson, C.J., dissenting)

(citing Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 11

(1987)).

In addition to its financial costs, a state’s usurpation

of participants’ rights to designate beneficiaries also

reduces participants’ and beneficiaries’ certainty as to

their rights under the plan. As this Court held in Boggs v.

Boggs, the “assets of a plan, again with certain exceptions,

are ‘held for the exclusive purposes of providing benefits

to participants in the plan and their beneficiaries and

defraying reasonable expenses of administering the plan.’ ”

520 U.S. 833, 845 (1997) (quoting ERISA § 403(c)(1), 29

U.S.C. § 1103(c)(1)). Upholding Section 11.07.010 and stat-

utes like it would preclude the fiduciary from meeting

that obligation by requiring the distribution of benefits to

someone other than a plan participant or designated ben-

eficiary.

22

Moreover, disregarding a participant’s beneficiary

designation violates ERISA Section 404(a)(1)(D)’s man-

date to administer a plan in accordance with its govern-

ing documents and instruments.'? Congress required

adherence to the governing documents in order to ensure

that participants and beneficiaries can ascertain their ben-

efit entitlements from a centralized source. In essence,

Congress designed ERISA with the “statutory goals of

efficiency in administration and certainty in expecta- -

tions” in mind. Estate of Altobelli v. International Business

Machines Corp., 77 F.3d 78, 82-83 (4th Cir. 1996) (Wilkin-

son, C. J., dissenting).'8

C. Given That ERISA Mandates How Benefit Dis-

tributions Be Paid, No Federal Common Law on

the Subject Is Necessary

1. It Is Inappropriate to Fashion Federal Com-

mon Law Which Overrides the Terms of an

ERISA Plan

As noted earlier, the WCT Fund presumes Petitioner

and Respondents will fully brief the issue of whether

Washington Revised Code Section 11.07.010 is preempted

by ERISA. Accordingly, other than joining Petitioner and

17 A beneficiary designation is itself an instrument

governing the plan. See Metropolitan Life Ins. Co. v. Pettit, 164

F.3d 857, 863 (4th Cir. 1998). In addition, employee benefit plans

nearly universally require the distribution of benefits to either

the participant or the participant’s designated beneficiary.

18 See also, Krishna v. Colgate Palmolive Co., 7 F.3d 11, 16 (2nd

Cir. 1993) (“It would be counterproductive to compel the Policy

administrator to look beyond those designations into varying

state laws regarding wills, trusts and estates, or domestic

relations to determine the proper beneficiaries of Policy

distributions”).

23

other amici in urging that the Washington statute is pre-

empted, the WCT Fund will not address that argument.

However, the determination that the statute is preempted

does not end the inquiry, as the court must determine

how to treat the beneficiary designation before it. A

number of courts, after finding a revocation-by-divorce

statute preempted, have gone on to fashion “federal com-

mon law.”!* As discussed below, this Court need not and

should not create federal common law governing the

effect of a divorce upon a beneficiary designation.

It is true that federal courts can and do create federal

common law to supplement federal statutory law. More-

over, Congress intended for federal courts to create a

body of federal common law to govern ERISA cases. As

this Court stated in Firestone Tire & Rubber Co. v. Bruch,

489 U.S. 101, 110 (1989):

[W]e have held that courts are to develop a

“federal common law of rights and obligations

under ERISA-regulated plans.” Pilot Life Ins. Co.

v. Dedeaux, 481 U.S. at 56. See also Franchise Tax

Board v. Construction Laborers Vacation Trust, 463

U.S. 1, 24, n. 26 (1983) (“ ‘a body of Federal

substantive law will be developed by the courts

to deal with issues involving rights and obliga-

tions under private welfare and pension plans’ “)

(quoting 129 Cong. Rec. 29942 (1974) (remarks

of Sen-favits)).

Though courts may in appropriate circumstances

fashion federal common law to resolve issues arising in

19 See, e.g., Hill v. A T & T Corp., 125 F.3d 646 (8th Cir. 1997);

Lyman Lumber Co. v. Hill, 877 F.2d 692 (8th Cir. 1989); John

Hancock Mut. Life Ins. v. Timbo, 67 F. Supp. 2d 413 (D.N.J. 1999);

Trustees of Iron Workers Local 451 Annuity Fund v. O’Brien, 937

F. Supp. 346 (D. Del. 1996).

24

ERISA cases, it is impermissible to establish federal com-

mon law where to do so would conflict with the terms of

ERISA itself. As stated in Mertens v. Hewitt Associates,

“the authority of courts to develop a ‘federal common

law’ under ERISA is not the authority to revise the text of

the statute.” 508 U.S. 248, 259 (1993) (citations omitted).

Indeed, as explained in Nachwalter v. Christie, 805

F.2d 956, 959-60 (11th Cir. 1986):

The claim that Congress intended for the federal

courts to create a body of federal common law

to govern ERISA cases does not .. . give a

federal court carte blanche authority to apply any

prevailing state common law doctrine it chooses

to ERISA cases. A federal court may create fed-

eral common law based on a federal statute's

preemption of an area only where the federal

statute does not expressly address the issue

before the court. See C. Wright, Law of Federal

Courts § 60, at 283-84 (3d. ed. 1976); see also

Textile Workers Union of America v. Lincoln Mills

of Alabama, 353 U.S. 448, 456-57, 77 S. Ct. 912,

918, 1 L. Ed. 2d 972 (1957). Furthermore, even

when it is appropriate for a federal court to

create federal common law, it may use state

common law as the basis of the federal common

law only if the state law is consistent with the

policies underlying the federal statute in ques-

tion; see Lincoln Mills, 353 U.S. at 457, 77 S. Ct.

at 918; Scott, 754 F.2d at 1502; federal courts may

not use state common law to re-write a federal

statute.

An attempt to fashion a federal common law which

provides for anything other than paying benefits to the

designated beneficiary would effectively re-write ERISA.

ERISA Section 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D), pro-

vides that a fiduciary shall discharge duties with respect

25

to a plan “in accordance with the documents and instru-

ments governing the plan.” Thus, ERISA explicitly

instructs a plan administrator how to distribute benefits.

If a plan provides that benefits are to be distributed to a

beneficiary designated by a plan participant, distribution

of benefits to anyone other than the designated benefici-

ary violates ERISA Section 404(a)(1)(D).

In McMillan v. Parrot, 913 F.2d 310, 311 (6th Cir. 1990),

the Sixth Circuit recognized that ERISA Section

404(a)(1)(D) requires a plan administrator to comply with

plan documents and beneficiary designations and, on that

basis, rejected the argument that state law relating to

waiver had been incorporated into federal common law.

McMillan explained that a court must first look to ERISA

itself, and only if ERISA provides no answer can a court

proceed to create federal common law. Id. McMillan then

held that ERISA provided the answer, and that resort to

federal common law was therefore unnecessary:

ERISA requires that a plan administrator dis-

charge his duties “in accordance with the docu-

ments and instruments governing the plan... .”

29 U.S.C. § 1104(a)(1)(D) (1985). . . . This clear

statutory command, together with the plan pro-

visions, answer the question; the documents

control, and those name [the former spouse].

We believe this resolution fulfills the intent

of Congress that ERISA plans be uniform in

their interpretation and simple in their applica-

tion. See H. Rep. No. 533, 93d Cong., 2d Sess.,

reprinted in 1974 U.S. Code Cong. & Admin.

News 4639, 4650.

McMillan, 913 F.2d at 311-12. Accord, Metropolitan Life Ins.

Co. v. Marsh, 119 F.3d 415, 420 (6th Cir. 1997) (ERISA

Section 404(a)(1)(D) “ ‘establishes a clear mandate that

plan administrators follow plan documents to determine

26

the designated beneficiary’ ”) (citation omitted); Metropolitan

Life Insurance Co. v. Pressley, 82 F.3d 126, 130 (6th Cir. 1996);

see also Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904 (10th

Cir. 1991). The WCT Fund submits that the Sixth Circuit

cases properly decide this issue, and that this Court should

announce that all courts faced with similar disputes should

follow the rule established in McMillan.

However, the WCT Fund acknowledges that the

McMillan approach is not the majority rule. Rather, while

the majority of federal courts have ruled that state stat-

utes or laws affecting the designation of a plan benefici-

ary are preempted by ERISA, most cases seem to follow

that conclusion by fashioning federal common law. This

common law generally turns on whether a designated

beneficiary might have waived rights to ERISA plan ben-

efits (based on, for example, the terms of a divorce agree-

ment).2° However, as shall be explained below, beyond

ERISA’s requirement to follow the terms of plan docu-

ments - including those relating to beneficiary designa-

tions - this Court should reject efforts to formulate

federal common law that would permit overriding a plan

participant’s beneficiary designation.

2. A Federal Common Law Approach Is War-

ranted Only Where Established Common

Law Principles Support a Consistent Rule

Even if one ignores the mandate of ERISA Section

404(a)(1)(D), any attempt to fashion a federal common

law rule regarding the effect of a divorce on an earlier

20 See, e.g., Dial v. NFL Player Supplemental Disability Plan,

174 F.3d 606, 611 (Sth Cir. 1999); Mohamed v. Kerr, 53 F.3d 911,

913 (8th Cir. 1995); Brandon v. Travelers Insurance Co., 18 F.3d

1321, 1325 (Sth Cir. 1994); Fox Valley & Vicinity Construction

Workers Pension Fund v. Brown, 897 F.2d 275, 278 (7th Cir. 1990).

27

beneficiary designation must come to grips with precisely

what law should be applied. As this Court stated in Pilot

Life v. Dedeaux, 481 U.S. 41, 56 (1987), the development of

a federal common law of rights and obligations under

ERISA-regulated plans would make little sense “if the

remedies available to ERISA participants and benefici-

aries under § 502(a) could be supplemented or sup-

planted by varying state laws.” See also Mertens v. Hewitt

Associates, 508 U.S. 248, 264 (1993) (White, J. dissenting),

(“Congress intended that the courts would look to the

settled experience of the common law in giving shape to

a ‘federal common law of rights and obligations under

ERISA-regulated plans,’ ” quoting Firestone Tire & Rubber

Co. v. Bruch, 489 U.S. 101, 110 (1989)).

Here, however, there is no “settled” rule regarding

how to resolve this issue. Instead, there are a multitude of

varying laws, exactly what Pilot Life declares cannot form

the basis of a federal common law. Moreover, even

though numerous courts have purported to find various

state statutes preempted, they have done so using a wink-

and-nod preemption doctrine, using the same preempted

law to form the basis for “federal common law.”?! Under

such circumstances, to the extent that federal courts look

to analogous state statutes to develop federal common

law, irreconcilable conflicts will arise between and even

within the circuits.

21 See, e.g., Brandon v. Travelers Insurance Co., 18 F.3d 1321

(Sth Cir. 1994) (Texas law preempted by ERISA but court uses

the same Texas law in fashioning federal common law); Fox

Valley & Vicinity Construction Workers Pension Fund v. Brown, 897

F.2d 275 (7th Cir. 1990), (after first stating that “ERISA preempts

state pension benefit laws,” court held that the district court

properly fashioned federal common law based on what was

characterized as “a closely analogous area of [Illinois] state

law”).

28

The Ninth Circuit faced this dilemma in Cisneros v.

Unum Life Insurance Co., 134 F.3d 939 (9th Cir. 1998), cert.

denied, 526 U.S. 1086 (1999), in considering whether Cali-

fornia’s notice-prejudice rule should be adopted as fed-

eral common law in ERISA cases. Cisneros observed that

the differences in the notice-prejudice rules of various

states would make fashioning federal common law on the

subject entirely unworkable:

ERISA directs us ‘to formulate a nationally uni-

form federal common law to supplement the

explicit provisions and general policies set out

in ERISA, referring to and guided by principles

of state law when appropriate, but governed by

the federal policies at issue.’ We decline this

invitation.

It would appear that the federal common law

we are directed to formulate must follow from

preemption, not from a conclusion that the law

is saved from preemption. Otherwise, laws from

different states dealing with the same subject

but with different results would end up in irrec-

oncilable conflict with each other. For example,

it has been brought to our attention that some

States’ notice-prejudice rules differ markedly

from California’s, some States presuming that

the insurer has been prejudiced by late notice. If

California’s notice-prejudice rule requiring the

insurer to prove actual prejudice is saved from

preemption, then so would the other States’

rules - but those rules would be inconsistent

with any California inspired federal common

law we might adopt. Moreover, which state law

would prevail would depend only on Which

came first to the courthouse in this context. Such

a result is patently untenable.

Cisneros, 134 F.3d at 947 (citations omitted). The same

problem identified in Cisneros would plague any attempt

ee

29

to fashion a federal common law rule regarding the effect

of a divorce on an earlier beneficiary designation. This

Court should reject any federal common law which

would vary from region to region depending on what

state’s law was borrowed to shape the federal common

law.

Simply put, ERISA expressly provides how to resolve

the issue: before the Court in this case and there is,

therefore, no need to create or adopt federal common law

on the subject.

The WCT Fund is cognizant of a number of times

courts have attempted to fashion federal common law in

cases addressing the effect of a divorce on an earlier

beneficiary designation. However, it is submitted that

those decisions have been driven more by a concern

about results than by any real gap or interstice in ERISA.

In light of ERISA’s mandate that benefit plans be

administered according to their terms, a concern about

results is not properly addressed by different courts in

different jurisdictions fashioning different rules. Rather, it

is the province of Congress to effect any changes to

ERISA in conformance with what Congress finds is

appropriate national policy. That is precisely what hap-

pened when Congress passed the Retirement Equity Act

of 1984, Pub. L. No. 98-397, 98 Stat. 1426, creating a

specific and narrow set of uniform rules governing Quali-

fied Domestic Relations Orders.

Unless and until Congress amends ERISA with legis-

lation which addresses the effect of divorce on benefici-

ary designations, this Court should hold that plan

administrators are to administer ERISA plans and distrib-

ute benefits in accordance with the terms of the plans and

their governing instruments. Such a rule furthers ERISA’s

goal of establishing an efficient means of administering

plans, will preserve plan assets, and will still enable any

30

participant to be the master of who is to receive benefits

upon that participant’s death.

IV. CONCLUSION

For the reasons stated above, the WCT Fund respect-

fully urges this Court to reverse the decision of the Wash-

ington Supreme Court in the matter of Egelhoff v. Egelhoff.

ak ee

Respectfully submitted,

Russet J. Rep Rosert S. UNGER

MicHaet R. McCartHy Counsel of Record

Davies Roserts & Reip CHARLES A. STORKE

101 Elliot Avenue West Nicote A. DILLer

Suite 550 JeNNirerR M. Petz

Seattle, WA 98119 Trucker @ Huss, APC

(206) 285-3610 120 Montgomery Street,

23rd Floor

San Francisco, CA 94104

(415) 788-3111

Counsel for the Western Conference of

Teamsters Pension Trust Fund as

Amicus Curiae in Support of Petitioner

es