Estate of Schaad

Filed 12/12/08 Estate of Schaad CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

APPEAL from the Superior Court of Riverside County. Edward D. Webster, Judge. Affirmed.

McCormick, Kidman & Behrens, Suzanne M. Tague, Joan J. Bennett, and Tram T. Tran, for Petitioner and Appellant.

Law Offices of Marjorie G. Fuller, Marjorie G. Fuller; Law Offices of Dean E. Daggett and Dean E. Daggett, for Claimant and Respondent.

Petitioner and appellant Ruby Don (the administrator) is the mother of decedent Bruce Schaad. She was appointed administrator of decedents estate. This dispute is over the distribution of the death benefits of decedents 401(k) retirement plan. Decedent had named Sonia Schaad (ex-wife) as primary beneficiary and ex-wifes adult daughter, Kristina Loriaux (stepdaughter) as alternate beneficiary of the 401(k) benefits. Decedent and his ex-wife were still married when decedent made these beneficiary designations. They were divorced before decedents death, however. Ex-wife disclaimed any interest in the 401(k) benefits after decedents death. The probate court awarded the benefits to stepdaughter as the alternate beneficiary. The administrator appeals this determination. We affirm.

FACTS AND PROCEDURAL HISTORY

Decedent and his ex-wife were married in 1991. Ex-wife had an adult daughter by a previous marriage. During the marriage, decedent was employed by Enterprise Technology, Inc. He had a 401(k) retirement account through his employment. The plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA). (29 U.S.C. 1001 et seq.)

In 1998, decedent made the last beneficiary designation on his 401(k) retirement plan: He named Sonia Schaad, identified as his wife, as the primary beneficiary, and Kristina Loriaux, identified as his stepdaughter, as the secondary beneficiary of the plan. Decedent never adopted his stepdaughter.

Decedent and ex-wife separated in 2004. Decedent filed for dissolution of the marriage in 2005.

Before he filed the petition for dissolution, decedent and ex-wife entered into an agreement for division of property. The property division agreement included the award to each party of his or her retirement account. A marital settlement agreement (MSA) attached to the judgment of dissolution provided for a mutual release of claims in the estate of the other: Each party, individually and for his or her heirs, executors, administrators, successors and assigns, hereby waives, releases and relinquishes any and all claims, rights or interests as a surviving spouse in or to any property, real or personal, which the other party owns or possesses at death, or to which the other party or his or her estate may be entitled.

The 401(k) plan was never made a party to the dissolution action. No qualified domestic relations order (QDRO) was ever issued in the action, dividing the marital interests in the 401(k) plan. Stepdaughter also was not made a party to the dissolution action, and she was not a party or signatory to the MSA.

The judgment of dissolution of marriage, filed on June 7, 2005, effected the dissolution as of September 13, 2005.

The decedent died intestate on January 2, 2006.

On September 25, 2006, ex-wife disclaimed any interest in the decedents 401(k) account.

The probate court appointed Ruby Don, the administrator of the decedents estate, and issued letters of administration on March 17, 2006. In April 2006, the administrator filed a petition for, among other things, an order to transfer the benefits under the 401(k) plan to her as administrator of the estate.

The administrator argued that the estate was the proper party to receive the benefits of the 401(k) plan, on the theory that the MSA had severed any rights [either party] had to the others separate assets, including retirement plans. She pointed to the waiver, in the MSA, of any rights in the estate of the other, including the language that ex-wife waived that right for . . . her heirs, executors, administrators, successors and assigns, to argue that the waiver was binding on his stepdaughter. The administrator also pointed to other waivers contained in the MSA, including a general release and waiver, renounc[ing] and forever discharg[ing] all community property rights and all other claims, causes of action, rights or demands, known or unknown, past, present or future, which . . . she now or hereinafter has, might have, or could claim to have against the other . . . . Finally, the administrator pointed to the last clause of the MSA, which stated: This Agreement shall be binding upon the parties hereto, and their respective heirs, executors, administrators, successors and assigns. The administrator argued that, under these provisions, the stepdaughter, as an heir of the ex-wife, was bound by the ex-wifes MSA waiver, and thus could make no claim to the 401(k) proceeds.

The stepdaughter opposed the administrators motion on the ground of ERISA preemption. The stepdaughter was personally individually named as an alternate beneficiary of the 401(k) proceeds. Her interest was not as the ex-wifes heir but in her own right; thus, the waiver of the ex-wifes claims for her heirs was inapplicable to any independent claim.

At the time of the hearing, the administrator added a new argument that the stepdaughters independent right never arose because the listed primary beneficiary, the ex-wife, was still living.

The court rejected the administrators arguments and held that the proceeds should be awarded to the stepdaughter, as the named alternate beneficiary.

The administrator appeals.

ANALYSIS

I. Standard of Review

In this case, the parties stipulated to all the relevant facts. In addition, we are called upon to interpret a statutory scheme (ERISA). When the issues on appeal involve the interpretation of statute (Kavanaugh v. West Sonoma County Union High School Dist. (2003) 29 Cal.4th 911, 916; California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699), or the application of law to undisputed facts (Emeryville Redevelopment Agency v. Harcros Pigments, Inc. (2002) 101 Cal.App.4th 1083, 1095; Harustak v. Wilkins (2000) 84 Cal.App.4th 208, 212), the appropriate standard of review is de novo.

II. The Award of the Proceeds to the Stepdaughter Was Proper

A. Plan Administrators Must Administer Plans Under Strict ERISA Guidelines

The parties agree that ERISA requires its plan administrators to comply with and administer plans in accordance with ERISA requirements and guidelines. They also both agree that that ERISA commands that a plan shall specify the basis on which payments are made to and from the plan. (29 U.S.C.  1102(b)(4).) The fiduciary is required to administer the plan in accordance with the documents and instruments governing the plan. (29 U.S.C.  1104(a)(1)(D); see also Egelhoff v. Egelhoff (2001) 532 U.S. 141, 147 [121 S.Ct. 1322, 1327-1328, 149 L.Ed.2d 264].)

ERISA provides that its provisions supersede any and all State laws insofar as they may now or hereafter relate to any [non-exempt] employee benefit plan . . . . (29 U.S.C.  1144(a).) The administrator concedes that ERISA preempts state law, and that California distribution law and the Probate Code do not apply. The distribution rules under California law and the Probate Code, such as any provisions for automatic revocation of beneficiary designations upon divorce, relate to or have a connection with ERISA benefit plans because such state statutory rules bind[] ERISA plan administrators to a particular choice of rules for determining beneficiary status. The administrators must pay benefits to the beneficiaries chosen by state law, rather than to those identified in the plan documents. (Egelhoff v. Egelhoff, supra, 532 U.S. 141, 147 [121 S.Ct. 1322, 1327, 149 L.Ed.2d 264, 271].) Such statutory or common law state rules directly affect the payment of benefits, which is a central concern of ERISA. (Egelhoff, at pp. 147-148.)

ERISA strives for nationally uniform plan administration; varying state automatic revocation laws defeat that purpose. (Egelhoff v. Egelhoff, supra, 532 U.S. 141, 148-149 [121 S.Ct. 1322, 1328, 149 L.Ed.2d 264, 272-273].) ERISA itself provides that the fiduciary should make benefit payments to the beneficiary who is designated by a participant, or by the terms of [the] plan. (29 U.S.C.  1002(8).) Thus, the plan administrator should be able simply to look to the beneficiary designation made (if allowed by the plan) by the plan participant.

The relevant document at issue here is decedents beneficiary designation form. Decedent marked on his beneficiary designation form that he was currently married. The form provided that an annuity payment to the participants spouse did not require spousal consent. The selection of a lump sum or installment payment to the spouse did require the written consent of the spouse. Decedent elected lump sum or installment payment, and specifically chose a lump sum payment, but nothing on the form showed spousal consent to that election.

If the participant wanted the death benefit paid to a beneficiary other than a spouse, spousal consent in writing was also required. Decedent did not mark the space indicating he wished the death benefit paid to someone other than his spouse.

As to the designated beneficiary(ies) portion of the form, decedent in fact named his spouse as the designated beneficiary: On the line subscribed name and relationship, decedent had written, Sonia Schaad and wife. No other designated beneficiary was named. In a separate section for secondary beneficiaries, decedent indicated [i]f any of my designated beneficiary(ies) are not living at the time of my death, I designate the following secondary beneficiary(ies) and thereupon entered Kristina Loriaux over the space indicated for name, and stepdaughter over the space indicated for relationship.

B. The Beneficiary Designations Comply With the Terms of the Plan

The administrator argues that both beneficiary designations failed according to the express terms of the form (i.e., the terms of the ERISA plan).

As to the ex-wife, the administrator argued that the designated beneficiary nomination failed because she did not sign a written consent to the option for lump sum or installment payments. The administrator seizes upon language on the beneficiary designation form concerning the spousal consent requirement,^[1]to the effect that failure to obtain proper spousal consent will cause the plan administrator to disregard this beneficiary designation in its entirety. She argues that the failure to obtain spousal consent as to the method of payment must necessarily force the plan administrators to disregard this beneficiary designation in its entirety, thus invalidating the designation to the ex-wife herself.

The administrator includes an argument that the decedent filled out the beneficiary designations under Section III. C. Payment to Beneficiary other than Spouse,  but this is simply untrue. The beneficiary form required a married plan participant to select only one of three options: Option Apay an annuity to the spouse of a married participant (no spousal consent required), or Option Bpay a lump sum or installment payment to the spouse of a married participant (spousal consent required), or Option Cpay the benefit to a person other than the spouse (spousal consent required). Decedent selected only Option B; he did not elect Option C, and did not mark that selection. Further, he in fact named his then-spouse as the designated beneficiary. Manifestly, decedent did not indicate that his death benefit should be paid to someone other than his spouse. The designated beneficiary(ies) and secondary beneficiary(ies) sections of the form were entirely separate and apart from the three payment options for married plan participants.

The administrator argues that the secondary beneficiary designation as to the stepdaughter also fails under the express provisions of the 401(k) form, based on the following language:

If any of my designated beneficiary(ies) are not living at the time of my death, I designate the following secondary beneficiary(ies). Because the ex-wife (designated beneficiary) was in fact still living at the time of decedents death, then, the administrator argues, the designation of a secondary beneficiary never comes into play.

These arguments are without merit.

We must interpret statutes and contractual instruments consistently with their language and to avoid absurdity. (People ex rel. S. F. Bay etc. Com. v. Town of Emeryville (1968) 69 Cal.2d 533, 543-544; see also Civ. Code,  1638.) Normally, we look first to the words of the statute or instrument. If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature . . . . (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735), or the contracting parties. But the plain meaning rule does not prohibit a court from determining whether the literal meaning of a statute [or contract] comports with its purpose . . . . (Ibid.) [A] statute [or contractual provision] should be interpreted to produce a reasonable result; the consequences of any particular interpretation must be considered. (Anderson Union High Sch. Dist. v. Schreder (1976) 56 Cal.App.3d 453, 460.)

The forced interpretation proffered by the administrator ignores the patent purposes of the statutory scheme and 401(k) plan documents, in order to achieve an absurd result.

The purpose of the spousal consent requirement is to protect the rights of spouses. (Lasche v. George W. Lasche Basic Profit Sharing Plan (11th Cir. 1997) 111 F.3d 863, 867 [strict ERISA requirements designed to ensure a valid waiver of a spouses retirement plan are consistent with the legislative policy of protecting spousal rights].) The election of payment options for married plan participants presents three alternatives: (1) annuity payment to the spouse (the default selection), (2) lump sum or installment payments to the spouse, or (3) payment to someone other than the spouse. Spousal consent is required for elections (2) or (3) in order to avoid certain tax consequences and to avoid dissipation of marital assets without the spouses knowledge.

Suppose, for example, a married plan participant elected a lump sum payment, but failed to obtain spousal consent for that election. Under the administrators proposed reading of the language on the benefits form, the failure to obtain spousal consent as to the form of payment would result in defeating the distribution to the surviving spouse in its entirety, leaving the spouse with nothing. The manifest statutory and contractual intent is, however, exactly the opposite: to preserve the distribution to the spouse. The statutory object of the qualified joint and survivor annuity provisions, along with the rest of [29 United States Code section] 1055, is to ensure a stream of income to surviving spouses. (Boggs v. Boggs (1997) 520 U.S. 833, 843 [117 S.Ct. 1754, 138 L.Ed.2d 45]; see also 29 U.S.C.  1055.) Thus, the spouse would be paid the death benefit in the default manner, by an annuity, and not defeased of all interest in its entirety. The administrators proposed interpretation is patently absurd.

The administrators contention as to the secondary beneficiary designation is equally absurd. She argues that the form clearly instructs the Plan Administrator to pay to the secondary beneficiary if, and only if, the designated beneficiary is not living at the time of the participants death. This tortured interpretation cannot stand. ERISA defines the term,  beneficiary  as a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder. (29 U.S.C.  1002(8).) In Baekgaard.v Carreiro (9th Cir. 1956) 237 F.2d 459, the court held that a secondary beneficiary was entitled to the proceeds of a benefit plan, when the primary beneficiary was living but, under the terms of a MSA, had waived her right to receive the benefit. The trial court had held that the proceeds should pass to the deceaseds estate, and not to the named secondary beneficiary, because  [t]he condition precedent to the payment of the proceeds to [secondary beneficiary] . . . to wit, the death of the primary beneficiary, not having been fulfilled as of the death of the assured, said secondary beneficiary is not entitled to the proceeds of the aforesaid policies.  (Id. at p. 464.) The appellate court rejected that reading as too strictly literal. (Ibid.)

 Because the beneficiary clause of a life insurance policy in which the insured has reserved the right to change beneficiaries is donative and testamentary in character, (citing cases) the intent of the insured as expressed by the language that she used should be given effect so far as possible. Although her expressed intent that her husband receive the proceeds cannot be given effect, the policy names the one she wished to take if her husband could not. It stated that the proceeds should be paid to the alternative beneficiary, if the primary beneficiary predeceased the insured. Thus, in the type of disability that would naturally be anticipated by the insured, the alternative beneficiary was preferred over the estate of the insured. In this case there occurred the only other possible contingency in which the primary beneficiary would be under a disability equivalent to actual death. The insured has clearly indicated her intent that any interest her estate might have in the proceeds of the policy should be subordinate to the interest of the alternative beneficiary.  (Baekgaard.v Carreiro, supra, 237 F.2d 459, 464-465, quoting Beck v. West Coast Life Ins. Co. (1952) 38 Cal.2d 643, 646-647.)

The benefit plan documents must be read sensibly, and the decedents beneficiary designations must be read so as to give effect to his expressed intent. He purposely named both a designated beneficiary, ex-wife, who was his spouse at the time, and a secondary beneficiary, to whom he preferred the benefits to be assigned if his spouse could not take. In any hypothetical case, if a designated (primary) beneficiary is still living, but waives the right to receive the proceeds, is the plan administrator required to ignore the participants express designation of a secondary beneficiary? Such a strained interpretation defeats the purpose of having such designations in the first place: to permit plan administrators to readily determine the distribution of the benefits by looking to the plan documents themselves.

The administrators forced interpretations of the beneficiary designation provisions cannot be sustained. Contrary to her contentions here, the primary and the secondary beneficiary designations complied with the 401(k) plans requirements.

C. The Affinity Cases Are Inapplicable

The administrator next advances the argument that ERISA is silent on the rights of a step-child, designated specifically as such, when the step-childs parent and the participant spouse are divorced. If the . . . plan documents are insufficiently clear to make a determination under the express provisions of ERISA, then [the court] must look to federal common law for guidance.

The predicate of the administrators contention is incorrect, however. First, the stepdaughter was not designated specifically as such; she was specifically named as a secondary beneficiary. Second, the plan documents are sufficiently clear.

Stepdaughter (Kristina Loriaux) was specifically named as the secondary beneficiary on the plans beneficiary form. That her relationship to the plan participant was also included on the form is of no moment. That statement was simply responsive to the forms request for information concerning the relationship; the gist or substance of the designation was an individual gift, not a class gift.

In Egelhoff v. Egelhoff, supra, 532 U.S. 141 [121 S.Ct. 1322, 149 L.Ed.2d 264], the respondents had argued, [b]ecause Mr. Egelhoff designated Donna R. Egelhoff wife as the beneficiary of the life insurance policy, they contend that once the Egelhoffs divorced, there was no such person as Donna R. Egelhoff wife; the designated person had definitionally ceased to exist. . . . In effect, respondents ask us to infer that what Mr. Egelhoff meant when he filled out the form was not Donna R. Egelhoff, who is my wife, but rather a new legal personDonna as spouse.  . . . They do not mention, however, that below the Beneficiary line on the form, the printed text reads, First Name [space] Middle Initial [space] Last Name [space] Relationship. . . . Rather than impute to Mr. Egelhoff the unnatural (and indeed absurd) literalism suggested by respondents, we conclude that he simply provided all of the information requested by the form. The happenstance that Relationship was on the same line as the beneficiarys name does not, we think, evince an intent to designate a new legal person.  (Id. at p. 149, fn. 2 [121 S.Ct. 1322, 1328, 149 L.Ed.2d 264, 273].)

In like manner, we decline to impute to decedent the intent to indicate a new legal person, in the form of Kristina Loriaux stepdaughter, rather than the more sensible, Kristina Loriaux, who is my stepdaughter. The designation was thus of a specific individual, and not a generic or class gift.

The affinity cases upon which the administrator relies thus have no applicability here.

Estate of Jones (2004) 122 Cal.App.4th 326 is distinguishable. There, the testator wrote a will giving the estate to his wife if she survived him, and making a residuary gift to: my stepdaughters, Paula Labo and . . . Kathy Hardie. (Id. at p. 329.) Before the testators death, he divorced his wife. The California automatic revocation statute, Probate Code section 6122, applied. The dissolution of marriage automatically severed any interest of the former wife. Probate Code section 6122 did not directly address the effect of divorce on the status of the children of the former spouse. The court looked to California common law, however, which established that, when a testator provides for his spouses children, he normally intends to exclude children of an ex-spouse after dissolution, unless a contrary intention is indicated elsewhere in his will. (Estate of Jones, at p. 333, quoting Estate of Hermon (1995) 39 Cal.App.4th 1525, 1531.)

Neither Hermon nor Jones involved an ERISA plan. In both cases, the gifts to the stepchildren were class gifts. Here, there is no occasion to import California statutory or common law on the issue of automatic revocation (loss of affinity), because Egelhoff already makes clear that ERISA preempts such rules. In addition, decedent specifically designated stepdaughter in her own right as a secondary beneficiary of his 401(k) plan. The mention of stepdaughter on the designation form was informational, not the substantive limitation of a class gift.

The administrators reliance on Fox Valley & Vicinity Constr. Workers Pension Fund v. Brown (7th Cir. 1990) 897 F.2d 275 is also misplaced. That case concerns the validity of a waiver of ERISA plan benefits in a divorce settlement agreement. The plan participant had named his spouse as his beneficiary. Thereafter they were divorced, and the participant and the former spouse entered into a property settlement agreement. The parties each waived any interest in the pension plan of the other. The participant died, and the former wife sought payment of the plan death benefit to her; in entering into the property settlement agreement and waiver, the parties did not execute a QDRO. The court held that, notwithstanding that the marital property settlement agreement did not qualify as a valid QDRO, the former wifes waiver was effective to extinguish her claim as a named beneficiary under the plan. (Id. at pp. 281-282.)

On the other hand, in Lyman Lumber Co. v. Hill (8th Cir. 1989) 877 F.2d 692, there was no marital property settlement agreement. The divorce court had issued a decree awarding the husband all interest in his pension, but made no orders, and the parties made no agreement, concerning the beneficiary designations. In that case, the court held that the dissolution of marriage did not affect the beneficiary designations, and the named former spouse, who had never expressly disclaimed her interest, was entitled to payment of the death benefit. (Id. at pp. 693-694.)

The trial courts judgment here is consistent with Fox Valley: here, the court held that ex-wifes waiver in the MSA was effective, even if no QDRO was entered. In addition, ex-wife expressly waived any claim she might have had to the proceeds of the 401(k) plan. Ex-wifes waivers, however, do not affect the status of stepdaughter as a specifically named alternate beneficiary.

The judgment was also consistent with Lyman Lumber. Here, in the MSA, ex-wife had expressly waived her own rights, for herself and her heirs, to any claim to the benefits. Even if that waiver had not been effective, however, and she again waived her rights separately after decedents death, in neither situation was the waiver effective upon the rights of an independently named beneficiary.

Here, stepdaughter was a specifically named secondary beneficiary. She had that status in her own right, independent of any interest ex-wife may have had in the 401(k) plan proceeds. Ex-wifes waiver in the MSA, for herself and her heirs could only be binding on those heirs as to ex-wifes claims to the proceeds. That waiver could not bind persons, who simply happened to also be ex-wifes heirs, who claimed an interest in the proceeds, not as successors to ex-wifes claims, but as independent claimants.

The trial court here properly concluded that stepdaughter was entitled to the ERISA benefits as a specifically named secondary beneficiary. Her claim was independent of any potential claim of ex-wife, and stepdaughter never waived her claim. The administrators proposed construction of the plan provisions is untenable and leads to absurd results.

DISPOSITION

For the reasons stated, the judgment is affirmed. Costs on appeal are awarded to claimant and respondent Kristina Loriaux.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

McKINSTER

J.

We concur:

HOLLENHORST

Acting P. J.

MILLER

J.

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^[1]SPOUSAL CONSENT REQUIREMENT. The reverse side of this BENEFICIARY DESIGNATION FORM contains a spousal consent statement. If you are married and your spouse does not consent, the Advisory Committee will disregard this beneficiary designation in its entirety. A plan representative or a notary public must witness your spouses consent or the consent will not be valid.