• The Ninth Circuit Holds that an IRA's Named Beneficiaries, Rather than the Decedent's Wife, Were Entitled to the IRA Funds After His Death, Even Though Some of the Funds in the IRA Had Been Rolled Over From A 401(K) Plan Subject to ERISA's Surviving Spouse Provisions -- Charles Schwab Co. v. Debickero, 105 AFTR 2d (9th Cir., January 22, 2010)
  • March 22, 2010
  • Law Firm: Proskauer Rose LLP - New York Office
  • The Ninth Circuit held that the named beneficiaries of an IRA, rather than the IRA owner’s wife, were entitled to the IRA funds after his death, even though some of the funds in the IRA had been rolled over from a 401(k) plan subject to ERISA’s surviving spouse provisions.

    Wayne Wilson was a participant of his employer’s 401(k) plan until 1992.  In 1994, while employed with another company, Wilson elected to close his 401(k) plan and take a lump sum distribution which he rolled over into an IRA with Smith Barney. 

    After having lived together since 1990, Wilson married Katherine in 2000.  In June 2002, Wilson opened another IRA with Charles Schwab, which he funded by transferring one-half of the proceeds from the Smith Barney IRA.  Despite his marriage to Katherine, Wilson told Schwab that he was divorced and named his four adult children from a prior marriage as the primary beneficiaries of his IRA.

    In 2005, Wilson died unexpectedly in a flash flood.  He was survived by Katherine and his four adult children who asserted competing rights to the funds.  Schwab filed an action naming Katherine and the children as defendants.  Katherine argued that she was entitled to the funds as the surviving spouse under either ERISA or the Code.

    The district court granted summary judgment in favor of the children and Katherine appealed to the Ninth Circuit.  Katherine argued that ERISA excludes from coverage only self-funded IRAs and not IRAs containing funds that originated as employer contributions to an ERISA covered plan.

    The Ninth Circuit rejected Katherine’s arguments and affirmed the district court’s grant of summary judgment and held that ERISA’s surviving spouse protections apply only when an ERISA-qualified plan is involved.  In this case, ERISA ceased to apply when, long before his marriage to Katherine, Wilson terminated his participation in the 401(k) plan and transferred the proceeds to the IRA.