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Improper Designation of Death Beneficiary, Seventh Circuit Court of Appeals Upholds Summary Judgment

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In A Case of Improper Designation of Death Beneficiary, Seventh Circuit Court of Appeals Upholds Summary Judgment Upheld Where Plan Vested Discretion in Administrator

In Ponsetti v. GE Pension Plan, 614 F.3d 684, the Seventh Circuit Court of Appeals had before it a suit over Employee Retirement Income Security Act (ERISA) benefits. The suit involved a trust established by a former employee against an ERISA plan and the plan administrator, as well as others. The trustee alleged that the plan and administrator breached their duties to provide a “full and fair” review of a request for claims, where there had been a refusal to disburse cash (death benefits) from the plan to the trust fund established by the former employee’s company. The former employee had established the trust to receive death benefits from the plan, but the plan paid the death benefits to the employee’s surviving spouse.

The United States District Court for the Central District of Illinois had granted summary judgment for the plan on a denial of benefits claim. The District Court also dismissed claims against the former employee’s company, as well as against the surviving spouse’s estate and guardian, and the employee who notarized the surviving spouse’s signature on a consent to the designation of a different beneficiary. The court concluded that the former employee (now deceased) had not properly designated the trust as a beneficiary, and that, under the plan, the employee’s spouse was the default beneficiary in the absence of any other beneficiary designation. In particular, the plan’s terms provided that there must be a properly authorized spousal consent, with signatures of the employee and the spouse as well as the signature and stamp of a notary who was to witness both spouse’s signatures. While the employee here provided the consent, the notary later swore in an affidavit that she did not, in fact, witness the two signatures. The designation of the trust of as the death beneficiary, therefore, was never properly authorized.

The Seventh Circuit affirmed. The appeals court found that the plan vested absolute discretion in the administrator, meaning that an arbitrary and capricious standard of review applied, and the denial of benefits to the trust (and the award to the surviving spouse) was not arbitrary and capricious.

The opinion can be found here.