MBE Rules · Wills, Trusts & Estates
ERISA Beneficiary Preemption
Egelhoff (ERISA preemption)
The rule
ERISA preempts state statutes revoking beneficiary designations on divorce — plan administrators pay the named beneficiary, though post-distribution state-law claims against the recipient may survive.
In plain English
Under ERISA, if a plan participant names a beneficiary in a retirement plan, that designation remains valid even if the participant gets divorced and state law would revoke it. This means that the plan must pay the named beneficiary, regardless of any state laws that might suggest otherwise, although the ex-spouse may still face legal claims after receiving the distribution.
Worked example
John names his wife, Sarah, as the beneficiary of his 401(k) plan. After they divorce, John does not update the beneficiary designation. When John passes away, the plan pays Sarah the benefits, despite the divorce. John’s children can still pursue a claim against Sarah for the funds after the distribution.
Memory hook
ERISA rules the beneficiary roost, even after divorce!
The trap
Examinees often mistakenly believe that state divorce laws automatically revoke beneficiary designations, overlooking ERISA's preemptive effect.
How examiners test it
Questions frequently present scenarios involving divorce and beneficiary designations, testing the candidate's understanding of ERISA's supremacy over state law.
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