Court Looks to Federal Common Law to Decide ERISA Beneficiary Dispute

The U.S. Court of Appeals for the Sixth Circuit recently considered whether a Tennessee "slayer statute" prohibiting a murderer from benefiting from the estate of the decedent is preempted by ERISA. Standard Insurance Co. v. Guy, No. 21-5562 (6th Cir. Aug. 19, 2024). The court left the issue of preemption unresolved "because it does not affect the resolution of th[e] case," holding instead that the collection of life insurance benefits after murdering the plan participant would be prohibited under both state law and federal common law. 

The defendant-appellant had been found guilty of killing his mother and father. The mother was covered under life insurance and accidental death and dismemberment plans through her employer, the father was insured under the dependent provisions of the plans, and the mother had named the defendant-appellant as a beneficiary. After his conviction, the defendant-appellant and his family members disputed who was entitled to the proceeds of the mother's plans and the insurance company filed the case as an interpleader action to determine who was entitled to the benefits. 

The Tennessee slayer statute provides that "[a]n individual who feloniously and intentionally kills the decedent forfeits all benefits with respect to the decedent's estate…." Tenn. Code Ann. § 31-1-106 (2017). Both the defendant-appellant and the other family members moved for summary judgment. The defendant-appellant argued, in part, that ERISA preempts the Tennessee statute and that he should get the insurance proceeds as the named beneficiary. The Sixth Circuit ruled in favor of the family members, affirming the decision of the district court and holding that both Tennessee and federal common law would disqualify the defendant-appellant from collecting the insurance proceeds, so there was no need to decide whether ERISA preempts the Tennessee law. 

The Sixth Circuit recounted that ERISA's preemption clause states that, if a plan is subject to ERISA, ERISA "supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." Further, the court stated that its prior cases on the specific issue of beneficiary designation under an ERISA plan have "taken an almost categorical tone," explaining that "the beneficiary designation 'fall[s] under ERISA's broad preemptive reach and [is] consequently governed by federal law'" (quoting Tinsley v. Gen. Motors Corp., 227 F.3d700, 704 (6th Cir. 2000). However, the court found that, despite strong language in prior cases favoring preemption, the application of ERISA preemption to slayer statutes remains an open issue. 

The court stated that the Supreme Court expressly discussed but did not decide the issue of ERISA preemption of state slayer statutes in Egelhoff v. Egelhoff, 532 U.S. 141, 152 (2001). The court also recognized that the only other circuit to address the issue, the Seventh, held in Laborers' Pension Fund v. Miscevic, 880 F.3d 927, 934 (7th Cir. 2018), that ERISA does not preempt state slayer statues. The Sixth Circuit, however, declined to decide the case on this basis, finding that even if ERISA did preempt the Tennessee law, federal common law would ultimately require the same result. 

Because the text of ERISA does not provide a rule expressly covering the "slayer scenario," the court explained that the typical default rule under ERISA would be to simply pay the named beneficiary. However, this rule is "is not absolute," and the court held that "[a] case involving a designated beneficiary who murders a life insurance plan participant is much like the undue-influence and fraud scenarios that… fall outside ERISA's pay-the-designated-beneficiary rule." 

Absent an express answer to the "slayer scenario" preemption question in the statutory language of ERISA, the court looked to federal common law. The court noted that the "slayer rule" is well-established in federal common law and that the Sixth Circuit previously applied the common-law slayer rule in a case arising from a different federal insurance statute in Shoemaker v. Shoemaker, 263 F.2d 931, 932 (6th Cir. 1959) (per curiam). Applying the federal common law slayer rule to the issue at hand, the court held that the defendant-appellant was not entitled to collect the insurance proceeds from his mother. According to the Court, "[a]ssuming ERISA preempts Tennessee's slayer statute, the federal common-law slayer rule controls this case."

One could argue that the court, like other courts before it, was at least in part motivated to turn to the federal common law and avoid adopting the "default rule" on ERISA preemption of state laws impacting beneficiary designations in order to reach a just result in this case. The court noted that the mother's "ERISA plans, themselves lacking a 'slayer' provision, provided no way for her to prepare for [the] gruesome contingency" of her own murder. Although the question of ERISA preemption of state slayer laws was not decisively addressed by the Sixth Circuit, both the Sixth and Seventh Circuits now have ruled against the collection of insurance proceeds by an ERISA plan beneficiary who has murdered the plan participant. 

Bristol Myers Squibb and State Street Named in Another "De-Risking" ERISA Lawsuit

On September 3, 2024, a former employee sued Bristol Myers Squibb Co. and its pension plan committee (collectively, Bristol-Myers) and State Street Global Advisors (State Street) in connection with a de-risking transaction that allegedly transferred $2 billion in defined benefit pension plan liabilities to Athene Annuity and Life Co. and its affiliates (Athene). Doherty v. Bristol-Myers Squibb Co., No.1:24-cv-06628 (S.D.N.Y. Sept. 3, 2024). This case is the latest in a string of recent ERISA cases challenging plan fiduciaries' selection of Athene as the annuity provider for a pension risk transfer (PRT). 

The lawsuit, which is a putative class action, includes ERISA fiduciary breach, co-fiduciary liability, knowing participation, and prohibited transaction claims against Bristol-Myers and State Street. The plaintiff alleges that the defendants failed to select the "safest annuity available" for the PRT, as defined in U.S. Department of Labor (DOL) guidance, because Athene is a "risky new insurance company" that engages in complex and risky offshore practices that threaten retiree benefits. According to the complaint, Athene, protected by a more relaxed regulatory scheme available in Bermuda, is able to utilize riskier investment strategies that jeopardize its credit worthiness. The plaintiff also alleges that Athene has relied upon misleading ratings from private credit rating organizations and that its transition out of the life insurance business in 2016, "a natural hedge to an annuities business," contributes to its higher risk as an annuity provider. The plaintiff argues that, by selecting such a high-risk annuity provider, the defendants violated their fiduciary duties of loyalty and prudence, and as a result, the value of his pension benefits was substantially decreased and made less secure, the risk that he will not receive his full retirement benefits was increased, and he lost protections under ERISA. 

The plaintiff asserts that Bristol-Myers profited in its selection of Athene, which he claims was "a much less expensive, but far riskier annuity than was available and that Bristol-Myers could have purchased" and that "[t]hrough the annuitization Bristol Myers was also able to capture hundreds of millions of dollars in surplus Plan assets and put that money to its own corporate ends." The complaint faults Bristol-Myers for selecting State Street as an independent fiduciary for the PRT, given the latter's "track record of recommending [PRTs] between plan sponsors and Athene." The complaint seeks a court order requiring the defendants to, among other things, disgorge all profits derived from the PRT, guarantee the annuities purchased from Athene, place the annuity contracts within the plan as plan assets, and thereby return class members to their former status as ERISA plan participants. 

In the PRT case against Lockheed Martin Corp. filed earlier this year, a hearing is set to take place on the defendants' motion to dismiss on October 10, 2024. Konya v. Lockheed Martin Corp., 8:24-cv-00750 (D. Md.). In the PRT litigation against AT&T, Inc., Schloss v. AT&T Inc., 1:24-cv-10656 (D. Mass.), and Piercy v. AT&T, Inc., No, 24-10608 (D. Mass), motions to dismiss and to consolidate the cases are pending. A motion to dismiss is also pending in Camire v. Alcoa USA Corp., 1:24-cv-010602 (D.D.C). No motions have been filed to date in Bueno v. General Electric Co., 1:24-cv-00822 (N.D.N.Y.), or in Schoen v. ATI, Inc., 2:24-cv-01109 (W.D. Pa.), which are two new PRT cases filed on June 28, 2024, and August 2, 2024, respectively. 

Upcoming Speaking Engagements and Events

The firm is sponsoring the ERISA 50th Anniversary Symposium and Gala on September 12.

Joanne is speaking at two ABA webinars in September. On September 10, she will discuss "Health Care Equality," and on September 17, she will co-present "50 Years of ERISA Preemption: Where Do We Stand?"

Joanne is also speaking at the ERISA Industry Committee 2024 Virtual Fall Policy Conference on September 24.

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