Legal Definitions - Egelhoff v. Egelhoff (2001)

Egelhoff v. Egelhoff (2001) is a significant U.S. Supreme Court case that clarified how federal law interacts with state law regarding beneficiary designations for employee benefit plans. The Court held that the Employee Retirement Income Security Act (ERISA), a federal law that sets standards for most private-sector retirement and health plans, generally overrides state laws that attempt to automatically revoke beneficiary designations for these plans upon divorce.

This means that if an individual names a beneficiary for an ERISA-governed plan—such as an employer-sponsored 401(k) (a common type of retirement savings plan) or a life insurance policy provided through work—and then divorces, the beneficiary designation remains valid unless the individual actively changes it through the plan's specific procedures. State laws that automatically cancel an ex-spouse's beneficiary status after divorce are "preempted" by ERISA, meaning the federal law takes precedence. The Court emphasized that a key goal of ERISA is to ensure uniform administration of employee benefit plans across all states, and allowing state laws to interfere with beneficiary designations would complicate this objective.

• Example 1: The Unchanged 401(k) Beneficiary

  Sarah worked for a large corporation and designated her husband, Mark, as the sole beneficiary of her 401(k) retirement account. Years later, Sarah and Mark divorced. Sarah moved to a new state and started a new relationship but, due to oversight, never updated her 401(k) beneficiary form. Her new state has a law stating that divorce automatically revokes an ex-spouse's beneficiary status on all financial accounts. Sarah unexpectedly passes away.

  How this illustrates Egelhoff v. Egelhoff: Despite the state law, Mark, the ex-husband, would still be legally entitled to inherit the funds in Sarah's 401(k). This is because Sarah's 401(k) is an ERISA-governed plan. Under the principle established in Egelhoff v. Egelhoff, ERISA preempts the state law that would have automatically removed Mark as a beneficiary. The plan administrator must follow the last valid beneficiary designation form on file, regardless of state divorce statutes.

• Example 2: Employer-Sponsored Life Insurance Payout

  John worked for a company that provided a substantial life insurance policy as part of his employee benefits package. He named his wife, Lisa, as the primary beneficiary. After several years, John and Lisa divorced. John later remarried but tragically died before he could update his life insurance beneficiary form. The state where John lived had a statute that automatically nullified any beneficiary designation to an ex-spouse upon the finalization of a divorce.

  How this illustrates Egelhoff v. Egelhoff: In this situation, Lisa, John's ex-wife, would receive the proceeds from the employer-sponsored life insurance policy. Because this policy is an ERISA-governed plan, the federal law overrides the state's automatic revocation statute. The insurance company, as the plan administrator, is obligated to pay the benefits according to the beneficiary designation form John had on file, which still named Lisa.

• Example 3: Pension Plan Inheritance

  Maria worked for a company for many years and, as part of her retirement planning, designated her husband, Robert, as the beneficiary for her company pension plan. They divorced after 20 years of marriage. Maria continued to work for the company for a few more years but never formally changed her pension beneficiary designation. The state in which Maria resided had a law that presumed any beneficiary designation to an ex-spouse was revoked upon divorce unless explicitly reaffirmed. Maria passed away, leaving behind her adult children from a previous marriage.

  How this illustrates Egelhoff v. Egelhoff: Robert, Maria's ex-husband, would be the rightful recipient of any remaining pension benefits. The company pension plan falls under ERISA. The ruling in Egelhoff v. Egelhoff dictates that the federal requirements of ERISA supersede the state's presumption of revocation. The plan administrator must adhere to Maria's last written beneficiary designation, which named Robert, ensuring uniformity in how such plans are administered nationwide.