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Must Death Benefits Be Distributed to a Murderer?

Practice Management

What’s a plan fiduciary to do when a participant’s designated beneficiary is responsible for the participant’s death?

That was the case in Estate of Brownell v. Lyczak (D.N.J., No. 18-16803, 10/25/19). As it turns out, on Dec. 30, 2017, Colleen Brownell was killed; on Feb. 1, 2019 the defendant in the case (Mark Lyczak) pled guilty to the crime. Brownell was a participant in a 401(k) plan, and had designated Lyczak – her boyfriend for some 20 years – as the primary beneficiary. 

The plan document provided that it “shall be construed, administered and applied in a manner consistent with the laws of the State of Maryland, except to the extent Federal law applies.” Brownell’s estate asked the U.S. District Court for the District of New Jersey to bar her former employer, PHH Corp., from distributing those retirement funds to Lyczak. PHH didn’t oppose Brownell’s request.

As we’ve seen in any number of ERISA litigation cases (though the standard applies broadly to any motion for summary judgment (i.e., judgment without a trial), the party moving for that determination bears the burden of proof. In this case, not only that there was no genuine dispute as to any material fact and that they are entitled to judgment as a matter of law. And remember that in considering a motion for summary judgment, the court is required to examine the evidence in a light “most favorable to the non-moving party and resolve all reasonable inferences in that party’s favor.”

The basis for the motion is the admission of guilt to the murder, and – according to the plaintiffs – the reality that “governing law forbids an individual who does so from being a beneficiary of such decedent’s 401(k) account assets.”

In considering the motion, U.S. District Judge Renee Marie Bumb noted that it was undisputed that Maryland law governs the administration of the plan, and that in the context of an individual disqualified from receiving property or interest in property of a decedent, Maryland law defines a “disqualified person” as a person who feloniously and intentionally kills, conspires to kill, or procures the killing of the decedent – and that that includes individuals named as a beneficiary of a life insurance policy on the decedent or other contractual arrangement with the decedent.

The court went on to cite Maryland’s common law “Slayer’s Rule,” explaining that the Maryland Court of Appeals described it as preventing “a murderer, or anyone claiming through or under the murderer as an heir or representative, from sharing in the distribution of the victim’s estate as an heir by way of statutes of descent and distribution, or as a devisee or legatee under the victim’s will.” 

Now, if it was “black letter” law that Lyczak was not eligible as a beneficiary here, the court turned its attention to who would be the beneficiary. Looking to the plan document, the judge noted language that stipulated that “if [Ms. Brownell] (i) omits or fails to designate a beneficiary, (ii) no designated beneficiary survives [Ms. Brownell], or (iii) [Defendant PHH's Employee Benefits Committee] determines that [Ms. Brownell’s] beneficiary designation is invalid for any reason, then the death benefits shall be paid to [Ms. Brownell’s] surviving spouse, or if [Ms. Brownell] is not survived by a spouse, then to [Ms. Brownell’s] estate.” 

Here, of course, Brownell neither omitted nor failed to designate a beneficiary, nor did her designated beneficiary fail to survive her – and, having already established that her designated beneficiary “must be disqualified as a function of Maryland law.” The court then determined that “under the Plan’s text, at Section 7(b)(iii), Defendant PHH’s Employee Benefits Committee is required by Maryland law to find that Ms. Brownell’s beneficiary designation is invalid, because Defendant Lyczak has been disqualified from serving as a beneficiary of Ms. Brownell’s Plan account. As Defendant PHH’s Employee Benefits Committee is likewise barred by Maryland law from distributing Ms. Brownell’s death benefits to her ‘surviving spouse,’ those benefits must be paid to Plaintiff,” i.e., Brownell’s estate.

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