Sunday, January 26, 2014

Frontiers of public finance

Questions of Justice and Law Raised When an Employee Benefits Plan Beneficiary Strangles His Grandmother, the Participant, to Death, 32 Tax Management Weekly Report 1756, 12/23/2013
ALBERT FEUER, Law Offices of Albert Feuer

A young man, Christopher Jackson (“Christopher”), strangled to death his grandmother, Rosemarie Little (“Rosemarie”), a beloved Skadden Arps legal secretary and churchgoing woman, who had chosen Christopher to receive part of her death benefits under her employer’s 401(k) plan and life insurance plan. Earlier this year a federal court decided that Christopher was entitled to none of Rosemarie’s life insurance benefits, and next year a federal court will determine whether he is entitled to any of her 401(k) plan benefits.

This article suggests that depriving Christopher of Rosemarie’s death benefits may be unjust, may be prohibited by ERISA, and may cause the Skadden Arps 401(k) plan to lose its tax-qualification.

To determine the just result, more facts need to be known about Christopher’s schizophrenia, past behavior, and his interactions with Rosemarie, who had raised him from the age of seven. It is difficult to achieve justice without considering the intentions it would be most reasonable to expect Rosemarie to have expressed, if she would have had such opportunity to do so with the knowledge of how she died and Christopher’s punishment.

Under the basic ERISA principle that plan terms determine benefit entitlements, as recently reaffirmed by the Supreme Court in Heimeshoff v Hartford Life & Accident Ins Co., 2013 U.S. LEXIS 9026 (Dec. 16, 2013), Christopher is entitled to receive and keep his death benefits from both Skadden ERISA plans. ERISA preempts non-criminal state laws that would override ERISA benefit rights, such as those laws that would deprive slayers of death benefits. ERISA does not preempt generally applicable criminal laws that would deprive slayers of death benefits. However, Christopher’s criminal sentence did not require him to give up any of Rosemarie’s death benefits. Thus, Christopher may not be deprived of those benefits.

Finally, because tax-qualified plans must make benefit payments pursuant to their plan terms, if the Skadden Arps 401(k) plan fails to pay Rosemarie’s death benefit to Christopher the plan may lose its tax-qualification. The Code makes no exception for payments made pursuant to a court order, such as the one the Skadden plan is seeking in the interpleader action it initiated.

Hat tip: Charlie Brown

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