It sounds like something you might see on Dateline. A happy couple with a white picket fence in the suburbs. And then … the unthinkable happens …. one spouse murders the other. The last thing on anyone’s mind is what happens to the retirement plan assets….unless you are a plan administrator.

A principal purpose of the Employee Retirement Income Security Act of 1974 (ERISA) is to provide a uniform set of rules for plan administrators to administer plans in multiple states. In doing so, Section 404(a)(1)(D) of ERISA directs fiduciaries to administer plans in accordance with the documents and instruments governing the plan. A typical retirement plan describes a participant’s right to designate a beneficiary and provides a default beneficiary in the event that a participant fails to do so or if a beneficiary designation is invalid for any reason. However, state slayer statutes can add a layer of complexity to the plan administrator’s decision of whom to pay following the death of a participant.

But Wait, Aren’t State Laws Preempted by ERISA?

Section 514(a) of ERISA preempts a state law where the state law “relate[s] to” an employee benefit plan.

Many states have enacted “slayer statutes” which prevent an individual responsible for the death of another to benefit from his or her crime.

So what happens when a beneficiary kills a plan participant? ERISA requires the plan to follow the plan terms and pay the murderer beneficiary. The state statute forbids the beneficiary from capitalizing on his or her bad act.

Litigation on Preemption

The Supreme Court has yet to decide the issue of preemption in the context of state slayer statutes. The closest Supreme Court decision available may be Egelhoff v. Egelhoff.   In Egelhoff, a husband had designated his wife as his beneficiary and later divorced. After the divorce, Mr. Engelhoff died without a will. His children filed suit claiming that the designation should be invalid based on a state statute nullifying a spousal beneficiary designation in an employee benefit plan upon divorce. Citing to ERISA’s goal of uniform plan administration, the Supreme Court found that the state law is preempted and the beneficiary designation to the now former spouse is valid.

On the flip side, a recent Seventh Circuit decision analyzes the state slayer statute preemption issue directly. In Laborers’ Pension Fund v. Miscevic, a plan participant was killed by his wife who was determined to be legally insane at the time of the killing. The plan filed an interpleader action asking the court to determine the appropriate party to receive the benefit. The wife argued for ERISA preemption (meaning she’s the proper beneficiary). The husband’s estate argued that the state statute should not be preempted (meaning the minor children are the proper beneficiaries). Ultimately, the Seventh Circuit found that the slayer statute is rooted in domestic relations law and therefore is not preempted by ERISA.

WAPATD – What’s A Plan Administrator To Do?

A plan administrator can file an interpleader action and ask the court to determine the proper beneficiary (as was done in the Miscevic case). Of course, filing an action in federal court is not without cost, but should result in payment to the proper beneficiary.

Instead, a plan administrator can require the beneficiary determined by the plan administrator in accordance with the terms of the plan (the deemed beneficiary) to indemnify the plan if a court later determines that the plan administrator got it wrong. This doesn’t sound like a great option because it requires the deemed beneficiary to still have the funds at the time a court makes a different determination and it may require the plan administrator to take costly legal action against the deemed beneficiary.

WWTSCD – What Would the Supreme Court Do?

There is no way to know whether the Supreme Court would determine that a state slayer statute is preempted in the case of a retirement plan beneficiary issue. However, it is hard to imagine the Supreme Court ruling that ERISA provides a loophole to allow a beneficiary who murders a plan participant to receive plan benefits.

A number of federal district courts have upheld state slayer statutes when determining proper beneficiaries under retirement plans, much like the Miscevic decision. However, until further guidance is available, plan administrators should carefully analyze the circumstances of each situation to ensure that a murdered plan participant’s benefit ends up in the right hands.