The Supreme Court recently issued a decision in a case, Hillman v. Maretta, that should serve as an eye-opener for all federal employees.
When Warren Hillman was an employee, he designated his wife, Judy, as the beneficiary of his Federal Employees’ Group Life Insurance (FEGLI) policy. When they divorced, that policy was not mentioned in the court order ending their marriage. Later, Warren Hillman remarried but failed to change the designation of beneficiary to his new wife. When he died in 2008, his ex-wife, now Judy Maretta, received the proceeds of the life insurance, $124,558.
Warren Hillman’s surviving spouse, Jacqueline Hillman, sued in Virginia Circuit Court, citing a state law that in such situations, a current spouse’s rights trump those of a former spouse. While the lower court agreed with that position, the Virginia Supreme Court reversed that ruling on the basis that federal law pre-empts state law.
The Supreme Court agreed June 3, stating that “Congress established a clear and predictable procedure for an employee to indicate who the intended beneficiary of his life insurance shall be.” The decision went on to say that the state law “interferes with Congress’ scheme, because it directs that the proceeds actually ‘belong’ to someone other than the named beneficiary by creating a cause of action for their recovery by a third party.”
The lesson: Take time to change your designation of beneficiaries when you experience life-changing events such as marriage, divorce, remarriage, the birth or adoption of a child, or the death of named beneficiaries. The lesson applies to not only life insurance, but also annuity and Thrift Savings Plan benefits.
If you are an employee, stop by your personnel office, look at your official personnel folder and make sure you have designation of beneficiary forms on file and that beneficiaries are the person or persons you want to receive your benefits. The form you need to designate FEGLI beneficiaires is Standard Form 2823.
Two related questions weren’t before the court. First, what happens if the person you designate to be the beneficiary of your FEGLI policy is no longer living? Second, what if you don’t file a designation of beneficiary?
Assuming there isn’t a court order requiring the benefit be paid to a former spouse, it will be paid according to the standard order of precedence:
- First, to your widow or widower.
- Second, if you leave no widow or widower, to your child or children in equal shares, with the share of any deceased child distributed among the descendants of that child.
- Third, if none of the above, to your parents (or parent).
- Fourth, if none of the above, to the executor or administrator of your estate.
- Fifth, if none of the above, to your next of kin who may be entitled under the laws of the state in which you are domiciled at the time of your death.
What happens if you retire, fail to designate a survivor benefit for your spouse, and later die?
According to the Office of Personnel Management: “The retirement law automatically grants a married retiree a fully reduced annuity with benefit to a widow(er), if at the time of retirement no election is made and the retiree does not respond to OPM’s attempts to obtain an election.”
However, “Like the retiree’s election, it may be superseded by a court-ordered former spouse survivor benefit if the retiree’s annuity commences and the marriage dissolved on or after May 7, 1985.”