On April 13, 2022, the Iowa Court of Appeals entered its opinion in the case of University of Dubuque v. Sharon Fairchild and Robilyn G. Cowart (No. 21-0216).

iowa lawyer for prenuptual agreementRichard Cowart was employed by the University of Dubuque beginning in January of 1998. His spouse at that time, Sharon Cowart, was named as his beneficiary on his TIAA and CREF Retirement Annuity Contracts. Richard and Sharon were divorced in June of 1998. In the divorce case, Sharon signed a stipulation providing that “I, Sharon Cowart, relinquish any claim to any savings accounts, securities, retirement fund, or inheritance due to or belonging to Richard Cowart”. Such stipulation became a part of the divorce decree.

In August of 1998, Richard married Robilyn. No new beneficiary designation was prepared and filed. On June 5, 2018, Richard passed away leaving Robilyn as his surviving spouse.

The University of Dubuque determined that Robilyn, as Richard’s spouse, was entitled to one-half of the Plan benefits pursuant to ERISA provisions requiring a mandatory preretirement death benefit to the surviving spouse.

On June 15, 2018, Robilyn was advised by TIAA that Sharon was the named beneficiary of Richard’s Plan benefits. Robilyn contacted Sharon on July 15th and requested that she disclaim the Plan benefits. Sharon agreed to arrange for her attorney to draft the Disclaimer. On July 19, 2018, Sharon sent the Disclaimer to TIAA stating that she disclaimed any and all interest in the TIAA account owned by Richard Cowart. After sending the Disclaimer, Sharon learned that Robilyn would receive half of the Plan benefits even without the Disclaimer. On September 28, 2018, Sharon sent a letter to TIAA advising them that she had changed her mind and requested half of the account.

On October 4, 2018, TIAA sent a letter to Robilyn advising her of their decision to pay one-half of the retirement benefits to Robilyn, as the surviving spouse, and one-half to Sharon, as the former spouse. After reviewing the divorce documents, TIAA determined that the documents did not apply under the case of Kennedy v. Plan Administrator for Dupont Savings and Investment Plan, 555 U.S. 285 (2009). Citing to Sharon’s disclaimer of benefits, Robilyn objected to the decision of TIAA.

In the spring of 2019, TIAA sent a letter to Sharon advising her that she was not the designated beneficiary of the Dubuque Plan and that no benefits were due to her. TIAA noted that the University of Dubuque Plan contained a provision that automatically revoked the designation of a former spouse upon divorce unless otherwise directed by the Court or upon the participants designation of the former spouse as a beneficiary. Sharon filed a formal contest of the TIAA decision with the University of Dubuque. Sharon indicated that the automatic revocation provision was dated 2009 and claimed that unless the University of Dubuque could provide a prior plan with the same revocation provision, the 2009 Plan did not apply and that she was the named beneficiary under ERISA law and rulings.

In July 2019, the University of Dubuque file an interpleader petition asking the Court to enter a ruling directing the University to hold the benefits and adjudicate the rights of Sharon and Robilyn to the benefits.

The District Court found that Sharon’s waiver in the 1998 divorce action “was a full, legal and judicially endorsed Disclaimer and terminated her beneficiary interest in the Plan”. The Court ordered the University of Dubuque to pay all remaining Plan benefits to Robilyn and denied her request for attorney fees. Sharon appealed the Ruling and Robilyn cross-appealed the attorney fee Ruling.

The Court of Appeals found that the University of Dubuque had a retirement plan in effect since 1921 and that the 2009 restated version was subject to and governed by ERISA. The Court noted that ERISA preempts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan described in the Statute”.

The Court went on to state that the University of Dubuque wasn’t able to provide any version of the retirement plan before 2007. The actual Plan for 2007 could not be located. A summary plan description of the 2007 Plan provided that “if you are married at the time of your death, your spouse will be the beneficiary of the entire death benefit unless an election is made to change the beneficiary”. The Plan description went on to say that “since your spouse has certain rights in the death benefit, you should immediately report any change in your marital status to the Administrator”. The Court went on to say that the 2009 Plan “is currently in effect and governs the requirements for claiming and distributing benefits”. The Court noted that the 2009 Plan contained a divorce revocation provision which provided as follows:

“A divorce decree, or a decree of legal separation, revokes the prior Participant’s designation, if any, or his/her spouse or former spouse as his/her Beneficiary unless:

a) The decree or a QDRO provides otherwise; or
b) The Employer provides otherwise in an Addendum.

This Section 7.05(A)(1) applies solely to a Participant whose divorce or legal separation becomes effective on or after the date the Employer executes this Plan unless the Plan is a Restated Plan and the prior plan contained a provision to the same effect.

The Court noted that there was no evidence as to whether the Plan before 2009 had a divorce revocation provision. The Court of Appeals went on to note that Iowa has a statute voiding a former spouse’s beneficiary status by issuance of the dissolution decree in Iowa Code Section 598.20B (2018). The Court went on to say that the United States Supreme Court has held ERISA preempts such a Statute and the Fiduciary must administer the Plan in accordance with the documents and instruments governing the Plan rather than the state Statutes revoking a named beneficiary status. The Court went on to note that the Plan allowed for the disclaimer by a participant beneficiary but did not specify a form or method for such disclaimer. The Court went on to conclude that a valid disclaimer for the 2009 Plan would be one that meets the requirement of 26 U.S.C. §2518 which sets forth the Internal Revenue Code requirements for disclaimers.

The Court next discussed the “Plan Documents Rule” which was derived from the above-cited Kennedy case. In the Kennedy case, the Supreme Court considered whether a waiver in a divorce decree should be honored by a plan administrator when determining the appropriate recipient of benefits of a former spouse. The Supreme Court determined that “the Waiver in the decree was a document with independent significance under state law and to which federal law can be applied”. The Supreme Court examined the Plan and determined that it required “all authorizations, designations and requests concerning the Plan be made by employees in the matter prescribed by the plan administrator and provided forms for such changes”. Said plan provided for waiver of benefits by beneficiary using a “qualified disclaimer” as defined under the tax code. The Supreme Court determined “the Plan’s documents and instruments preempt a divorced spouse’s waiver of plan benefits for purposes of plan administration”.

In comparing the current case to Kennedy, the Court of Appeals found that as in Kennedy, the plan documents “provide that the plan administrator will pay benefits to a participant’s designated beneficiary, with designations and changes to be made in a particular way”. The Court of Appeals went on to note that the revocation provision in the plan “applies solely to a Participant whose divorce or legal separation becomes effective on or after the date the Employer executes this Plan unless the Plan is a Restated Plan and the prior Plan contained a provision to the same effect”. The Court of Appeals agreed with the District Court that the revocation provision “by its express terms does not apply to Richard”. The Court of Appeals noted that the 2009 Plan required that the beneficiary designations be done using a prescribed form, and that based on the actions of TIAA and the University of Dubuque, the Court of Appeals presumed that the designation met the plan’s requirements.

In regard to the Waiver, the Court of Appeals found that the burden was on Robilyn to show that the 1998 divorce stipulation meets the statutory requirements of a qualified disclaimer under the 2009 Plan. The Court noted Robilyn made no effort to do so and concluded that it does not meet the requirements. The Court concluded that Kennedy applies and that the Waiver did not divest Sharon of her rights under ERISA.

In regard to the argument of Robilyn that the Summary Plan document from 2007 required a non-spouse beneficiary designation to include the spouse’s consent (Robilyn), the Court noted that that a Summary Plan document does not by itself constitute the terms of the plan. As such, the Court of Appeals concluded that the Summary Plan document did not divest Sharon of her beneficiary designation where there was no evidence that such provision was contained in the actual plan documents.

In regard to the letter of Sharon sent to TIAA in July of 2018 disclaiming benefits, and the letter of Sharon in September of 2018 revoking the Disclaimer, the Court noted that Sharon “did not produce any uncompleted plan documents required to execute a disclaimer or even a notification from TIAA the letter was insufficient as a disclaimer”.

The Court next examined the letter of July 2018 to see if it met the requirements of 26 U.S.C §2518. The Court concluded that the letter of July 2018 met all of the requirements of the Statute including it became irrevocable when she mailed the Disclaimer in July of 2018. The Court concluded that the Disclaimer was effective and that the interest at issue passed to Robilyn by the default beneficiary provision of the 2009 Plan. The Court of Appeals affirmed the District Court’s Ruling that Robilyn was entitled to Richard’s entire interest as his default beneficiary under the 2009 Plan. In regard to the Cross-Appeal for attorney fees, the Court agreed with the District Court that the action was brought as interpleader action and not under ERISA and thus the attorney fees were not recoverable.