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Appellate Court Backs Beneficiary Designation


There are plenty of cautionary tales about beneficiary designations and unintended consequences—here’s another.

It seems that Sally A. Hogen made contributions to a 401(k) plan during her employment at Honeywell International Inc. She originally designated her husband (Clifford C. Hogen) as the sole beneficiary in the event of her death. Well, subsequently Sally and Clifford divorced—and in the marital termination agreement (MTA), they agreed that “[Sally] will be awarded, free and clear of any claim on the part of [Clifford], all of the parties’ right, title, and interest in and to the Honeywell 401(k) Savings and Ownership Plan.”

Several years later, Sally submitted a change-of-beneficiary form to Honeywell. She allocated “33 1/3%” of the 401(k) benefits to each of her siblings. However, the instructions said, “The Allocation % must be whole percentages”—and since she did not use whole percentages, Honeywell did not change her designation. To their credit, Honeywell called Sally and left a message notifying her of the rejection—and also sent 11 annual statements showing Clifford as the sole beneficiary. Right up to the point where Sally died (2019) with nearly $600,000 in her 401(k) plan—at which point Honeywell paid the benefits to…Clifford, who, of course, was still listed as beneficiary on the account.

Enter Robert F. Gelschus, as personal representative of Sally’s estate—who sued Honeywell for breach of fiduciary duty, and Clifford for breach of contract, unjust enrichment, conversion, and civil theft. The district court granted summary judgment to both Clifford and Honeywell, noting that Honeywell did not breach a fiduciary duty because it complied with ERISA’s “plan documents rule[i].” As for Clifford, the district court determined that Gelschus did not have standing and, even if he did, his claims failed on the merits because there was no genuine dispute of fact whether Clifford breached the MTA.

Gelschus appealed that decision—and the appellate court affirmed the summary judgement for Honeywell—but reversed the summary judgement for Clifford on the breach of contract and unjust enrichment claims.[ii]

The case presented to the U.S. Court of Appeals for the Eighth Circuit (Gelschus v. Hogen, 8th Cir., No. 21-3453, 8/29/22) involved some dispute as to whether the Honeywell 401(k) Plan gave the plan administrator discretion over eligibility for benefits—and though the plaintiff noted the Plan’s statement that “…the Plan Administrator has full discretionary authority and power to control and manage all aspects of the Plan, determine eligibility for Plan benefits, interpret and construe the terms and provisions of the Plan, to determine questions of fact and law, direct distributions, and adopt rules for the administration of the Plan as it may deem appropriate…,” the Honeywell defendants said that that discretion didn’t extend to having discretion to accept designations that fail to comply with the forms.  More specifically, the Summary Plan Description’s reference to “properly completing and submitting…” 

Moreover, they noted that “even if the Plan gave the administrator discretion to accept Sally’s defective Form, it is not an abuse of discretion to act in accordance with plan documents,” citing the example from a U.S. Supreme Court case that upheld summary judgment for the plan administrator. 

“When Sally died, the only valid designation named Clifford as sole beneficiary. Honeywell did not abuse its discretion by following the Plan’s instructions to distribute benefits in accordance with that designation.” Ultimately, the court ruled, “Because Honeywell followed plan documents in rejecting Sally’s defective change-of-beneficiary form and distributing benefits, Gelschus’s breach of fiduciary duty claim fails. The district court properly granted summary judgment.”

What This Means

Know who your beneficiary is. And if you mean to change the beneficiary, make sure you actually do.


[i] Basically, following the terms of the plan document.

[ii] While not germane to the focus of this post, the appellate court found that the claim wasn’t preempted by ERISA, and that the issue of whether the plaintiff had standing to bring suit (the district court held he didn’t), “this court concludes that, even if the MTA were ambiguous, a reasonable jury could find that Sally and Clifford intended for the MTA to waive his beneficiary interest in the 401(k). The district court’s contrary conclusion is clearly erroneous.”


All comments
Gary Duell
1 year 2 weeks ago
Seems like the law, and the courts, should seek to enforce the intent of the account owner unless that intent is unclear. Granted, her request wasn't perfect but it was a clear request nonetheless. Cases like this, where the wrong people win, are what create [undeserved] disdain for lawyers and the law.