Lack of Documentation Trumps Verbal Designation

A thorny Employee Retirement Income Security Act (ERISA) dispute bouncing around the federal courts, known as Becker v. Mays-Williams, highlights the importance of precision in retirement plan documentation and communications—on the part of participants as well as service providers.  

The case reached the U.S. District Court for the Western District Of Washington (for a second time) on remand from the 9th U.S. Circuit Court of Appeals, which had reversed the district court’s previous summary judgment and demanded fresh consideration of the issues. Also important to note, the initial litigation started as an interpleader action initiated by the ERISA plans’ fiduciaries—rather than by one of the potential beneficiaries—seeking a determination as to the proper recipient of proceeds under two employee benefit plans run by Xerox, following the death of the participant.

The complicated dispute underlying the case reaches back decades to when the participant, an employee for Xerox, first formally designated his wife as his beneficiary for the purposes of two ERISA plans, committing this to writing in plan documentation. After the couple later divorced, the man “moved to designate his son as his beneficiary over the telephone but did not sign and return beneficiary designation forms,” case documents show. Xerox went so far as to send the participant several rounds of beneficiary designation forms asking him to confirm his selection of his son as his beneficiary, “but he did not sign and return the forms.”

Later, after the participant died and asset distributions were requested, the plans’ fiduciaries felt they could not determine who deserved the assets he had accrued, and so they asked the courts for direction on who actually was due the money. During the bench trial, which finally took place in January of this year, the participant’s son presented evidence and witness testimony “to support his contention that [his father] either strictly or substantially complied with the term of the plans” in using a phone call to change his beneficiary but not returning the confirmatory paperwork.

Interestingly, the district court’s new ruling agrees with the participants’ son in that “the governing plan documents permit unmarried participants to change their beneficiary designations by telephone,” essentially because the plan documents do not name a specific or mandatory pathway for making a beneficiary change. According to case documents, “The plans … fail to provide any mechanism for how such a change may or should be made. Put another way, the governing plan documents are so equivocal that unmarried participants could change their beneficiaries by email, carrier pigeon, messages in a bottle, or any other form of communication.”

NEXT: Wrong for another reason 

While agreeing with the participant’s son that the plan has a “liberal mechanism” in place for changing one’s beneficiary, the district court’s decision actually sides with the ex-wife. “The problem with [the participant's son's] position is not the type of communication, but rather the lack of any clear and unequivocal communication,” the court explains. 

“First, he failed to establish that [his father] was the individual who called Xerox to change the beneficiary designation. It is undisputed that someone called Xerox, but he failed to sufficiently establish that his father was the caller. For example, he did not submit evidence to establish the phone number of the individual that called Xerox. Without additional supporting evidence, the court cannot assume that simply because calls were made by someone purporting to be the participant that those calls were actually made by the participant. In today’s world, we see the nearly ubiquitous use of security measures—such as codes and personal identifying information—to avoid fraudulent transactions.”

Based on the evidence presented at trial, the district court determined it is “unclear whether Xerox consistently employed such measures in this case. In fact, Xerox’s internal notes from the [most recent] contact in July 2007 show that the participant did not have a username or password to update his beneficiary online. With or without the use of identifying information over the phone, it is reasonable for Xerox to require written verification of the designation change to avoid fraudulent transactions.”

Following the phone call in question, Xerox sent several rounds of authorization forms to the participant, asking for validation of the beneficiary change requested in the phone call. “With regard to the first two times the forms were sent, the participant did not sign, date, and return the forms. As for the third time, the forms were returned unsigned and/or undated. Xerox subsequently sent two letters on February 1, 2011. The letters informed the participant that he failed to sign and/or date the authorization forms, and therefore his beneficiary designation could not be considered valid. The letters further informed him that if a new authorization form was not signed, dated, and returned, the beneficiary change would not be considered valid.”

Taking all this together, the district court ruled that “even if it was established that [the participant] at some point expressed a desire to change his beneficiary, the very fact that he allegedly called three times, was told to sign and return an authorization form three times, and failed to return a properly completed authorization form three times, is compelling evidence that he ultimately did not want to change his beneficiary. Indeed, under the circumstances presented in this case, it is just as reasonable—if not more reasonable—to conclude that he did not make the calls as it is to conclude that he did. It is also just as reasonable to infer that even if [the participant] was the caller, his failure to return a signed authorization form demonstrates that he did not, in fact, wish to change his beneficiary.”

Also important to the decision, case documents show, was the fact that the participants' divorce decree “did not change the designation of the beneficiary of the plans … The divorce decree was not a QDRO. Thus, any orders entered in the parties’ divorce proceedings do not in and of themselves remove [the ex-wife] as the designated beneficiary of the plans or otherwise demonstrate intent one way or the other.”

Additional background on the case as it was argued/decided in appellate court is here.