In the past, I have written about the importance of doing regular “dependent eligibility audits” and litigation over payment of retirement benefits to spouses, ex-spouses and other beneficiaries. 

But every once in a while, a case comes to my attention that reminds me that one of the hardest parts of maintaining benefit plans is that they benefit employees and their dependents, and frequently the status of these folks can change. Consequently, keeping track of dependent status is a key component of good plan administration.

In Forristal v. Federal Express, the district court in Massachusetts considered a case where the employee claimed that he was a victim of wrongful termination. He claimed that the basis for his termination was, in part, punishment for keeping his ex-spouse enrolled in the company health plan for seven years after his divorce.  

The company found out about the deception when the employee asked to drop the ex-spouse because he was getting remarried. From a purely legal point of view, the employer argued that ERISA pre-empted the wrongful discharge claim and the court ultimately agreed. Because the claim ultimately related to the administration of the plan, it was pre-empted by Section 514 of ERISA.

However, setting the legal arguments aside, the plan language in question clearly made it so that the ex-spouse was not eligible for benefits. But for seven years, it continued to treat the ex-spouse as a covered dependent.

Employees’ status frequently change

I have seen in the past where retirement plans have run into a quandary over payment of retirement benefits to the “spouse” only to find out that a divorce has occurred. 

Moreover, I have actually seen situations where the plan has continued to list a deceased spouse as a primary beneficiary. I have even seen a situation where a health plan accidentally continued coverage for a spouse of a deceased employee for years, apparently not aware that the employee had died.

Also see: Is your client ready for a DOL audit of its health plan?

In each of these situations, there were logical explanations for how the mistakes occurred. But in each case, it struck me that problems could have been avoided with a regular review of who the plan considered to be “dependents.”  

Good recordkeeping is important for good plan administration. Not all plans have open enrollment every year where dependent eligibility can be checked, so consider some type of audit of your plans to verify dependents are still in fact “dependents” under the terms of your plan. 

And before you make fun of Federal Express in this case, make sure you don’t have the same problem.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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