pension

By: Andrew B. Bryant

Mother Died Three Days Before Pension Payments Would Have Vested With Daughter

In a truly unfortunate set of circumstances, a woman who worked for 37 years at a Wisconsin children’s hospital passed away three days after her retirement date, with her pension payments set to begin another three days after he date of death.   The woman’s daughter, the named beneficiary under the pension plan (“the Plan”), was denied payments under the Plan because the date of death preceded the beginning of pension payments.

In upholding the denial of benefits, the Seventh Circuit noted that in order to avoid certain potential tax implications under 26 U.S.C. § 401(a)(9), the Plan made clear that only spouses were entitled to collect benefits when the participant dies before Plan payments begin.    As such, even though the mother named her daughter as a beneficiary in Plan documents, the daughter was not eligible to receive any benefits because the Plan participant died before the onset of pension payments (albeit only three days).    In its ruling, the Seventh Circuit found that the Plan Administrator’s decision was reasonable given the Plan’s intent to avoid named tax consequences, and that the decision was not arbitrary and capricious.    In addressing areas lacking clarity in the Plan documents, the Seventh Circuit deferred to the Plan administrator, noting that the courts should give deference to a Plan administrator’s interpretation when plan language is ambiguous.

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