Nonqualified Plan Beneficiary Not Determined by Qualified Plan

A decision from The 9th U.S. Circuit Court of Appeals confirms a lower court ruling that a retirement plan membership letter and beneficiary designation form for a nonqualified plan “did not clearly and unequivocally incorporate by reference the entirety” of the terms of a plan sponsor’s qualified retirement plan.

For this reason, the terms of the qualified plan cannot determine a beneficiary under the nonqualified plan, the court ruled.

In the case E & J Gallo Winery v. Rogers, E & J Gallo Winery filed an interpleader action to determine the designated beneficiary under its Key Executive Profit Sharing Retirement Plan, referred to throughout the suit as the ERP. The benefit at stake in the case belonged to one Robert Rogers, a now-deceased former Gallo employee.

Prior to the appellate court action, the district court denied Michele McKenzie-Rogers’ motion for summary judgment granting her the benefit, concluding that Mark Rogers was instead the proper beneficiary under the terms of the ERP. Michele McKenzie-Rogers, who was married to Robert Rogers at the time of his death, appealed the decision, leading to the current affirmation from the 9th Circuit.

The case turned on a dispute as to whether the terms of the Gallo Profit Sharing Retirement Plan, an Employee Retirement Income Security Act (ERISA) qualified plan, were incorporated into the ERP when certain of its terms were referenced in a 1988 membership letter to Rogers.

The appellate court noted that McKenzie-Rogers relies heavily on the letter’s third paragraph, which states that vesting, methods of payment and “all other matters” under the ERP will be determined under the Gallo Qualified Plan. Both the appellate and district court determined Michele McKenzie-Rogers reads “all other matters” too broadly, as the fourth paragraph of the 1988 letter specifically addresses the issue of designating a beneficiary, and informed Robert that if he did not do so in the accompanying form, payments would be automatically made to his estate upon his death.

The terms relating to beneficiary designation in the 1988 letter are in direct contradiction to the analogous provisions in the Gallo Qualified Plan. As explained in the appellate court decision, the Gallo Qualified Plan provides that benefits would be paid a) to the surviving spouse, or b) to the designated beneficiary, but only if there was no surviving spouse or if the surviving spouse had consented to the designated beneficiary, and would pass to the estate only if there were no surviving spouse or the surviving spouse had consented to the designated beneficiary.

Robert Rogers used the form to unambiguously designate his former wife, Audrey Rogers, as his primary beneficiary under the ERP, and his brother, Mark, as his secondary beneficiary. But, Audrey Rogers waived her rights as the primary beneficiary of the ERP in a “Waiver and General Release” that she signed on February 6, 2008.

“Nothing in the ERP governing documents provided that Robert’s marriage to Michele would void his prior beneficiary designation,” the court decision reads. The court also pointed out that the ERP is a nonqualified, top hat plan, exempted under ERISA from spousal consent requirements.

The text of the 9th Circuit decision is here.