Pension Benefits are for the Plan Participant and Designated Beneficiaries Only

The Employee Retirement Income Security Act (“ERISA”) provides in Section 1056(d) that any pension plan qualified under ERISA must include a rule that benefits provided under the plan cannot be assigned or alienated, except by Qualified Domestic Relations Order (“QDRO”). As this is a federal law, it preempts any state law to the contrary.

The reason is in the title of the Act – it is designed to protect the retirement income of employees and, by extension, their beneficiaries. In Boggs v. Boggs, 520 US 833 (1997), the United States Supreme Court made this clear. In Boggs, the wife died, leaving her community property interest in her husband’s pension to their sons in her will. The husband remarried, and the survivor benefit was paid to the second wife upon his death. The sons sued to claim they should receive the survivor benefit payments that would have been paid to their mother, the deceased's first wife, since it was given to them in a testamentary transfer.

The court found that the testamentary transfer of the first wife to her sons was a prohibited assignment of the first wife’s benefit. The Court clarified that ERISA prohibits a beneficiary’s testamentary transfer of undistributed pension benefits to another person.

What does this mean in a divorce case? If the case deals with a shared-interest division of an ERISA-governed pension plan and the alternate payee dies first, the alternate payee’s benefit cannot be paid to any third party. It must revert to the participant.

This is only with respect to shared interest divisions of ERISA-governed pension plans. The rules differ when dealing with a non-ERISA governed plan or a separate interest division. If you have a pension plan that you want assistance in handling, or have other retirement issues, please click here to contact our office or call us at 240-396-4373.