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1999 Term, Number 17 / June 19, 2000

Today the Supreme Court granted certiorari in two cases, one of which is of potential interest to the business community. Amicus briefs in support of the petitioner are due on Thursday, August 3, 2000, and amicus briefs in support of the respondents are due on Monday, September 4, 2000. Any questions about these cases should be directed to Donald Falk (202-263-3245) or Eileen Penner (202-263-3242) in our Washington office.

ERISA — Preemption — Pension Beneficiary Designation — Anti-Alienation Provision.  The Supreme Court granted certiorari in Egelhoff v. Egelhoff, No. 99-1529, to decide two questions regarding the extent to which the Employee Retirement Income Security Act ("ERISA") preempts state law. The Court will decide (1) whether a state law that would require ERISA plan benefits to be paid to someone other than the designated beneficiary "relates to" employee benefit plans and therefore is preempted by ERISA’s general preemption provision, 29 U.S.C. § 1144(a), and (2) whether the state law is preempted by ERISA’s anti-alienation provision, 29 U.S.C. § 1056(d)(1), which strictly limits the assignment or alienation of pension plan benefits.

David Egelhoff’s employer provided him with a life insurance policy and pension plan that were covered by ERISA. David designated his wife, Donna Egelhoff, as the beneficiary for both plans. When the Egelhoffs divorced, David received the entirety of the benefits under both plans. David died two months later, however, while Donna was still the designated beneficiary of both plans.

David’s children from a previous marriage sued in Washington state court to collect the benefits from the two plans. The children based their claims on a Washington statute governing decedents’ estates, Rev. Code Wash. § 11.07.010. That provision effectively revokes the designation of a former spouse as the beneficiary of a life insurance policy, employee benefit plan, or similar asset, if the designation was made while the couple was married; the provision mandates distribution of the assets as if the former spouse had died first. The state trial court held that ERISA preempted the children’s state-law claims. The Washington Court of Appeals reversed, holding that ERISA did not preempt the statute and that the children therefore were entitled to the benefits of both plans. 968 P.2d 924 (1998).

The Supreme Court of Washington affirmed. 989 P.2d 80 (1999). Relying on Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645 (1995), and later decisions, the state supreme court discerned a "retreat from the expansive preemption doctrine * * * previously followed." 989 P.2d at 87. The court held that the state-law provision did not "relate[] to" an ERISA plan within the meaning of 29 U.S.C. § 1144(a) because the effect of the state statute on ERISA plans was "too slight to overcome the presumption against preemption of state family and family property law." 989 P.2d at 90. The court also held — contrary to the position of the Secretary of Labor, who appeared as an amicus curiae — that, insofar as the state law applied to pension plans, it did not conflict with 29 U.S.C. § 1056(d)(1), which restricts the assignment or alienation of pension benefits in ERISA plans. The state supreme court did not believe that the invalidation of a beneficiary designation amounted to the type of diversion of benefits forbidden by the ERISA anti-alienation provision. See 989 P.2d at 91.

The Washington Supreme Court acknowledged that its decision on the broader preemption issue conflicted with decisions by the Fourth, Fifth, Sixth, Seventh, and Tenth Circuits. See 989 P.2d at 90 n.97. The Washington court followed a decision of the Ninth Circuit, see Emard v. Hughes Aircraft Co., 153 F.3d 949 (1998), cert. denied, 525 U.S. 1122 (1999), with which some other state courts apparently have agreed.

This case is of significant potential interest to the ERISA plan administrators and to employers who sponsor ERISA plans. Those parties generally have a strong interest in establishing a national and uniform body of benefits law. The Supreme Court has yet to deny preemptive force to ERISA when matters so closely touching the relationship between plan and beneficiary were at issue. A decision permitting divergent state laws, rather than a federal standard, to govern even such matters as the proper identification of a beneficiary would significantly increase the administrative expenses associated with ERISA plans, increasing the costs of obtaining employment benefits and discouraging employers from sponsoring benefits plans.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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