Is ‘Substantial Compliance’ Good Enough?

Can oral instructions from a plan sponsor trump the terms of a plan document?

That was the central issue in Ruiz v. Publix Super Markets, Inc., a case involving beneficiary designations heard by the U.S. District Court for the Middle District of Florida.

The Case

Iraleth Rizo, a long-time employee of the Publix supermarket chain, had been a participant in both the company’s employee stock ownership plan (ESOP) and its 401(k) plan.

As it turned out, the summary plan descriptions (SPDs) for both plans contained very specific instructions on changing beneficiary designations. Specifically, the SPD indicated that the change was to be made by submitting a signed and completed Beneficiary Designation Card. Moreover, it said: “Your change of beneficiary designation is not valid under the Plan until the Retirement Department receives and processes the properly completed Beneficiary Designation Card.”

In October 2008, Rizo named her niece and nephew as her beneficiaries for both the ESOP and the 401(k) Plan. However, by September 2011, things had changed – Rizo was no longer working for the firm, and she had been diagnosed with cancer. In January 2015, she called her former employer and asked how she could update her beneficiary designations. According to Arlene Ruiz, who was listening to the conversation (and who was the individual that Rizo wanted to change her beneficiary to), the Publix representative told Rizo that in order to change her beneficiaries, she must write a letter that includes her name, Social Security number and the beneficiary cards if she could obtain them. The emphasis was on signing and dating the letter; as for the beneficiary cards, the Publix representative said that they were really not important because Rizo was not an active associate at the time.

A letter was drafted with the pertinent information, as were beneficiary cards, and mailed to Publix. Rizo died on Jan. 19, 2015. However, on the signature lines of the Beneficiary Designation Cards, Rizo did not place her signature; instead, she wrote: “as stated in letter.” According to Publix, after it received the letter and cards, Publix did not process the change of beneficiary because the Beneficiary Designation Cards were not properly filled out, as Rizo had not signed and dated them. (According to Publix, it returned the Beneficiary Designation Cards to Rizo with a letter explaining why they were being returned, but they weren’t received in time to deal with the situation.)

The plans paid both death benefits to Rizo’s niece and nephew in accord with the original 2008 designations. When Ruiz filed a claim for the death benefits, the plans denied the claim because properly completed Beneficiary Designation Cards had not been filed. Ruiz sued, claiming that the letter identifying her as the beneficiary was sufficient.

The Ruling

Responding to motions for summary judgment from both parties, Judge Susan Bucklew noted that based on the facts construed in the light most favorable to Ruiz, two things are clear: (1) Rizo intended to change the beneficiary of her ESOP and 401(k) plan to Ruiz and attempted to do so; and (2) Rizo did not strictly comply with the Summary Plan Descriptions’ directives for how to change her beneficiaries.

Ruling against the plaintiff, Judge Bucklew rejected the notion of “substantial compliance” in a non-ERISA beneficiary claim case in favor of a 2009 United States Supreme Court case, Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. That case held that:

“ERISA requires [e]very employee benefit plan [to] be established and maintained pursuant to a written instrument, specify[ing] the basis on which payments are made to and from the plan. The plan administrator is obliged to act in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of [Title I] and [Title IV] of [ERISA], and ERISA provides no exemption from this duty when it comes time to pay benefits…”

Judge Bucklew noted that, “After Kennedy, it is doubtful that the doctrine of substantial compliance remains viable, given the Supreme Court’s emphasis on the duty of a plan administrator to act in accordance with the plan documents. The Supreme Court specifically stated that ERISA forecloses any justification for inquiries into expressions of intent that do not comply with the plan documents.”

She concluded that, “Without the doctrine of substantial compliance, it is clear that the last valid beneficiary designations in effect are the ones Publix received in October 2008 naming the Vargas Counter-Defendants as the beneficiaries of the ESOP and the 401(k) Plan. As such, Publix is entitled to summary judgment.”

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