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Has your spouse designated you as the beneficiary under his or her life insurance policy? This is critically important, especially if his insurance is through his work. Group policies issued to employers for the benefit of their employees are, with few exceptions, governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”). Section 514(a) of that law provides that ERISA “supersede[s] any and all State laws insofar as they may … relate to any employee benefit plan.” Thus, your spouse’s life insurance obtained as an employee benefit from his or her work is governed by federal ERISA law, not state law.
Why is this important? Many states, including California, have community property laws that protect a surviving spouse’s interest in the deceased spouse’s life insurance policy. Under California State law, specifically its community property laws, a surviving wife, for example, may give a community property right up to half of his or her spouse’s life insurance proceeds even if the surviving spouse is not designated as the beneficiary. There is no such right, however, if the subject life insurance policy is governed by federal ERISA law. Under ERISA, all of a current or former spouse’s life insurance benefits go to the person who is designated as the beneficiary in accordance with the employer’s plan requirements – which usually means filling out the beneficiary form, signing it and returning it to the employer. So, for example, if your husband forgot to switch the beneficiary from his ex-wife to you, you are out of luck. Or, if your spouse designated his or her children as beneficiaries, the children are likely entitled to all his life insurance benefits. California’s community property laws will not help you. In other words, if you are not the named beneficiary under an employer-sponsored ERISA plan, you have no right to the proceeds (unless perhaps you can show the beneficiary waived his/her rights to the benefits after the designation or if you can show the beneficiary exercised undue influence). While that seems harsh for a spouse that simply forgot to make the switch on the employer’s beneficiary form, community property rights will not supersede the beneficiary designation under ERISA.
This is because ERISA preempts state community property laws, including California’s laws. The Ninth Circuit and its federal district courts agree that when a beneficiary has been identified in an ERISA-regulated life insurance plan, a state does not have the authority to supersede the designated beneficiary of the proceeds through community property laws. Instead, under federal ERISA law, the life insurance proceeds must be paid to the designated beneficiary. See Orr v. Prudential Ins. Co. of America, 2012 WL 2122157 (D. Idaho, June 12, 2012). Relying upon the United States Supreme Court’s decision in Egelhoff v. Egelhoff, 532 U.S. 141 (2001), the Orr court held: “In accordance with Egelhoff, the Court finds that ERISA preempts Idaho community property laws when such laws require an ERISA plan administrator to pay ERISA life insurance proceeds to someone other than the designated beneficiary.” Orr at *2. The Ninth Circuit Court of Appeals agrees. See Carmona v. Carmona, 603 F.3d 1041, 1062 (9th Cir. 2010).
In Orr, the insured decedent/employee named his minor son as the beneficiary of his group life insurance policy provided by his employer. Upon the decedent’s death, his surviving spouse sought the proceeds of the group life insurance policy on the basis that Idaho’s community property laws entitled her to a one-half interest in those life insurance proceeds. The Orr court, however, held that the surviving spouse’s state law arguments were completely preempted by ERISA and, under the provisions of ERISA, the proceeds were to be paid to the named beneficiary (the minor son) and not to the unnamed surviving spouse. Id. at *2.
The lesson learned from Orr is that, if a spouse is enrolled in a group life insurance plan governed by ERISA, that spouse must properly designate you as the beneficiary in accord with the plan’s requirements.
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