LINDA DARLENE WEIAND v. BOARD OF TRUSTEES OF KENTUCKY RETIREMENT SYSTEMS; STEVEN JOSEPH WAND; AND A.B. CHANDLER, III, ATTORNEY GENERAL OF KENTUCKY
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RENDERED:
April 30, 1999; 2:00 p.m.
TO BE PUBLISHED
C omonwealth O f K entucky
C ourt O f A peals
NO.
1998-CA-001028-MR
LINDA DARLENE WEIAND
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NO. 1991-CI-1103
v.
BOARD OF TRUSTEES OF KENTUCKY
RETIREMENT SYSTEMS;
STEVEN JOSEPH WAND;
AND A.B. CHANDLER, III,
ATTORNEY GENERAL OF KENTUCKY
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
KNOPF, KNOX, AND SCHRODER, JUDGES.
KNOPF, JUDGE:
This is an appeal from a declaratory judgment
finding that the former version of KRS 61.542(2)(b) terminates a
former spouse’s status as beneficiary of a state employee’s
pension if the divorce decree is entered after the member is in
pay status.
The trial court further found that the statutory
scheme does not violate the former spouse’s equal protection or
due process rights and that the retirement system is not estopped
from enforcing the statute.
Finding no error, we affirm.
Steven J. Wand (Steven) retired from the Louisville
Police Department on April 1, 1988.
Prior to his retirement, he
chose the “Survivorship 100%” retirement benefits option.
This
plan provided him with a monthly benefit for his life, and upon
his death, his beneficiary would continue to receive that same
amount of monthly benefits.
Steven chose his wife, the
appellant, Linda Darlene Wand (Darlene), as his beneficiary.
He
entered pay status in April 1988.
Darlene filed for divorce in July 1988, and the couple
entered into a marital settlement agreement in February 1989.
The agreement provided that Darlene would receive 31.182% of each
pension benefit payment which Steven received from the Kentucky
Employee’s Retirement System (KERS), and that Darlene would
remain the named beneficiary under the survivorship option of the
plan.
Darlene submitted a qualified domestic relations order
(QDRO) to KERS, but KERS rejected it based upon KRS 61.542(2)1,
which stated in pertinent part:
When the first retirement allowance payment
is issued by the State Treasurer and
subsequent thereto:
. . . .
(b) A member shall not have the right to
change his beneficiary after the first
benefit payment has been issued by the State
Treasurer. The estate of the retired member
becomes the beneficiary if . . . the retired
member had designated a spouse and they were
divorced on the date of the retired member’s
death.
Darlene filed a declaratory judgment action in the
Franklin Circuit Court, arguing that KERS’ interpretation of the
1
Now KRS 61.542(5)(b).
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statute was erroneous and in violation of the Fifth and
Fourteenth Amendments to the United States Constitution.
The
trial court initially dismissed the action, finding that Darlene
had not stated an actual and present controversy.
On appeal,
this Court reversed, concluding that Darlene presented a
justiciable claim.
Wand v. Board of Trustees of Kentucky
Retirement Systems, Ky. App., 936 S.W.2d 778 (1997).
On remand, the trial court considered the merits of
Darlene’s claim on cross-motions for summary judgment.
The trial court concluded that: (1) KERS is not estopped from
denying Darlene’s status as Steven’s beneficiary; (2) KERS’
interpretation of KRS 61.542(2)(b) is consistent with the
legislature’s intent; (3) KRS 61.542(2)(b) does not violate
Darlene’s equal protection rights; and (4) KRS 61.542(2)(b) does
not violate Darlene’s due process rights.
This appeal followed.
Darlene first argues that KERS should be estopped from
denying her beneficiary status.
Darlene contends that the
summary plan description promulgated by KERS does not clearly
inform members that divorce after the member goes into pay status
will void a prior designation of a spouse without leave to redesignate the spouse as beneficiary.
The trial court concluded that the doctrine of
equitable estoppel is not available against a state agency, such
as KERS, except in unique circumstances where the court finds
exceptional and extraordinary equities involved.
Urban Renewal
and Community Development Agency of Louisville v. International
Harvester Co., Ky., 455 S.W.2d 69 (1970).
Darlene first contends
that KERS should not be considered a state agency.
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We disagree.
KERS is listed as a state agency under the control of the
Finance and Administration Cabinet.
KRS 12.020 II(8)(o).
We do
not find the test for determining whether an agency possesses
sovereign immunity to be applicable in this circumstance.2
Darlene next asserts that there are “exceptional
equities” which support the application of equitable estoppel
against KERS.
KRS 61.540(2) requires KERS to prepare a summary
plan description, “written in a manner that can be understood by
the average member or beneficiary, and sufficiently accurate and
comprehensive to reasonably apprise them of the rights and
obligations.”
Among other things, the summary plan description
must contain “a reasonable list of circumstances which would
result in disqualification, ineligibility, or denial or loss of
benefits.”
KRS 61.540(3)(f).
Darlene contends that the summary
plan description fails to set out that a divorce after the member
is in pay status will void the designation of a spouse as
beneficiary without leave to re-designate the spouse.
As a
result of KERS’ failure to specifically list this circumstance
for her disqualification, Darlene contends that KERS should be
equitably estopped from denying that she remains as the
designated beneficiary of Steven’s pension.
We agree with the trial court that equitable estoppel
is inappropriate in this case.
First, the summary plan
2
KRS 61.645(2)(a) provides that KERS has the status of a
corporation, with the power to sue and be sued in its corporate
name. The broad grant of authority meets the test for an
explicit waiver of sovereign immunity as set out in Withers v.
University of Kentucky, Ky., 939 S.W.2d 340 (1997). However, the
waiver of sovereign immunity does not otherwise alter KERS status
as a state agency.
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description clearly states that a “final divorce decree voids a
spouse’s designation as beneficiary unless the member designates
the former spouse as beneficiary again after the decree is
issued.”
5.
Summary Plan Description, “Member Responsibilities”, p.
Later in the same document, the Summary Plan Description
states, “[o]nce the first retirement check has been drawn by the
State Treasurer, the member cannot change his or her named
beneficiary.”
Id., “Retirement Options”, pp. 19-20.
These
descriptions closely track the language, respectively, of KRS
61.542(1)(a)3 and KRS 61.542(2)(b).
Although these descriptions do not directly reference
each other, we conclude that they were sufficient to put Darlene
on notice that the divorce would alter her status as Steven’s
beneficiary.
Consequently, we find that KERS made no false
representation or concealment of material facts which would have
induced Darlene to act in reliance thereon.
See, Electric &
Water Plant Board of City of Frankfort v. Suburban Acres
Development, Inc., Ky., 513 S.W.2d 489 (1974).
Moreover, we do
not believe that the doctrine of equitable estoppel could be
applied to require KERS to administer its plan in a manner
contrary to law.
Therefore, we find no equities, exceptional or
otherwise, to support the application of the doctrine of
equitable estoppel in this case.
In Hughes v. Scholl, Ky., 900 S.W.2d 606 (1995), our
Supreme Court held that divorce alone does not affect a
designation of a spouse as beneficiary under a life insurance
3
Now KRS 61.542(1)(c)1.
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policy.
Id. at 608.
However, the Supreme Court also noted that
this rule shall hold true “[u]nless and until the Kentucky
General Assembly legislates a different result.”
Id.
Therefore,
the central issue in this case is whether KERS has correctly
interpreted KRS 61.542(2)(b), to void a designation of a spouse
as beneficiary after a divorce when the member is in pay status.
As a preliminary matter, we note that the Employee
Retirement Income Security Act of 1974 (ERISA), preempts state
laws which "relate to" employee benefits plans.
1144(a).
29 U.S.C. §
However, if state law affects ERISA-covered plans in
"too tenuous, remote, or peripheral a manner," the state law does
not "relate to" the plan and therefore is not preempted.
Shaw v.
Delta Air Lines, Inc., 463 U.S. 85, 100 n. 21, 77 L. Ed. 2d 490,
503 n. 21, 103 S. Ct. 2890 (1983).
Furthermore, the ERISA
preemption is limited with regard to areas which are
traditionally left to state regulation. See, De Buono v. NYSA-ILA
Medical and Clinical Services. Fund, 520 U.S. 806, 138 L. Ed. 2d
21, 29, 117 S. Ct. 1747 (1997).
A state law "relates to" an ERISA plan where it "acts
immediately and exclusively upon ERISA plans, . . . or where the
existence of ERISA plans is essential to the law's operation."
California Div. of Labor Standards Enforcement v. Dillingham
Constr., N.A., Inc., 519 U.S. 316, 325, 136 L. Ed. 2d 791, 799,
117 S. Ct. 832 (1997).
The test for determining whether a state
statute had a connection with ERISA such that application of the
state law would frustrate ERISA's purposes is:
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(1) whether the state law regulates the types
of benefits of ERISA employee welfare benefit
plans;
(2) whether the state law requires the
establishment of a separate employee benefit
plan to comply with the law;
(3) whether the state law imposes reporting,
disclosure, funding, or vesting requirements
for ERISA plans; and
(4) whether the state law regulates certain
ERISA relationships, including the
relationships between an ERISA plan and
employer and, to the extent an employee
benefit plan is involved, between the
employer and employee.
Emard v. Hughes Aircraft Co., 153 F.3d 949, 958 (9th Cir. 1998);
(quoting Operating Engineers Health and Welfare Trust Fund v. JWJ
Contracting Co., 135 F.3d 671, 678 (9th Cir. 1998)).
KRS 61.542(2)(b) does not impose any improper
requirements upon an ERISA regulated plan, nor does it affect the
administration of the plan.
Instead, it affects merely the
ultimate ownership of distributed benefits.
ERISA does not
preempt application of state laws which merely re-designate the
beneficiary under an ERISA plan, because such laws do not do
"major damage" to a "clear and substantial" federal interest.
Estate of Egelhoff v. Egelhoff, 93 Wash. App. 314, 968 P.2d 924,
930 (1998).
Accordingly, KRS 61.542(2) is not preempted by
ERISA.
Darlene contends that the statute should be narrowly
construed to terminate a divorced spouse as beneficiary only when
the divorce occurred between the time the member notifies KERS of
his intent to retire and the time the member receives his first
retirement check.
As noted by the trial court, this
interpretation involves an extremely unlikely circumstance.
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Furthermore, the interpretation is not consistent with the
express language of the statute.
KRS 61.542 specifically draws a distinction between the
time prior to the issuance of the first retirement allowance and
the time subsequent to the issuance of the first retirement
allowance.
The statute does not base any distinction upon the
time when the member notifies KERS of his intent to retire.
Thus, KRS 61.542(1)(a) states that a final divorce decree
terminates an ex-spouse’s status as beneficiary.
The member may
re-designate the ex-spouse as beneficiary, but only prior to the
issuance of the first retirement payment.
After the issuance of
the first retirement payment, the estate of the member becomes
the beneficiary if the retired member had designated a spouse as
beneficiary and they were divorced on the date of the retired
member’s death.
KRS 61.542(2)(b) does not contain a provision
allowing re-designation of a former spouse.
The plain language
of KRS 61.542 supports KERS’ interpretation of the statute.
Darlene further argues that the 1996 amendments to KRS
61.542 support her interpretation of the statute.
KRS
61.542(5)(b) still provides that after the first retirement
allowance is issued by the State Treasurer, the estate of the
retired member becomes the beneficiary if the member had
designated a spouse as beneficiary and they were divorced on the
date of the retired member’s death.
The only difference is that
the current statute explicitly states that “an ex-spouse who was
named beneficiary on the member’s notification of retirement
shall be reinstated as the member’s beneficiary . . . if they are
remarried as of the date of the retired member’s death.”
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Contrary to Darlene’s interpretation, the amendment indicates
that the divestiture of beneficiary status occurs upon entry of
the divorce decree, rather than on the date of the member’s
death.
Under the current statute as well as under the former
statute, Darlene’s status as a beneficiary was terminated upon
her divorce from Steven.
Darlene next raises a pair of constitutional challenges
to the validity of KRS 61.542(2)(b).
First, she argues that the
statute violates the Equal Protection Clause of the Fourteenth
Amendment to the United States Constitution.
The Equal
Protection Clause expresses a fundamental principle: “the State
must govern impartially”.
New York City Transit Authority v.
Beazer, 440 U.S. 568, 587, 59 L. Ed. 2d 587, 604, 99 S. Ct. 1355
(1979).
It further “directs that all persons similarly
circumstanced shall be treated alike.”
Plyler v. Doe, 457 U.S.
202, 72 L. Ed. 2d 786, 798, 102 S. Ct. 2382 (1982).
Legislative
enactments are subject to the “strict scrutiny”, “heightened
scrutiny”, or “rational basis” standards of review, depending
upon the importance of the constitutional interest affected by
the statute.
Cleburne v. Cleburne Living Center, 473 U.S. 432,
439-442, 87 L. Ed. 2d 313, 320-321, 105 S. Ct. 3249 (1985).
Darlene argues that KRS 61.542 should be considered
under the “strict scrutiny” standard because the classification
is based upon divorce.
We disagree.
First, while the right to
marry is regarded as a fundamental right, Loving v. Virginia, 388
U.S. 1, 18 L. Ed. 2d 1010, 87 S. Ct.
1817 (1967), there is no
recognized substantive constitutional right to divorce.
Moreover, the statute does not affect any party’s right to
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divorce.
Rather, KRS 61.542 merely specifies how divorce will
affect a member’s designation of a spouse as beneficiary.
The
economic aspects of divorce are an appropriate area for state
legislation.
It is well established that any challenge to the
constitutionality of an act of the General Assembly must
"necessarily begin with the strong presumption in favor of
constitutionality and should so hold if possible."
Brooks v.
Island Creek Coal Co., Ky. App., 678 S.W.2d 791, 792 (1984);
Edwards v. Louisville Ladder, Ky. App., 957 S.W.2d 290, 295
(1997).
Statutes involving the regulation of economic matters or
matters of social welfare are typically reviewed under the lowest
level of equal protection scrutiny, the “rational relation” test.
According to that test, when a statute does not burden a suspect
class or a fundamental interest, we must uphold the statute
“unless the varying treatment of different groups or persons is
so unrelated to the achievement of any combination of legitimate
state purposes that we can only conclude that the legislature’s
actions were irrational.”
Pennell v. City of San Jose, 485 U.S.
1, 14, 99 L. Ed. 2d 1, 16, 108 S. Ct. 849 (1988).
On a rational
basis review, those attacking the rationality of the legislative
classification have the burden “to negative every conceivable
basis which might support it.”
FCC v. Beach Communications,
Inc., 508 U.S. 307, 315, 124 L. Ed. 2d 211, 222, 113 S. Ct.
2096
(1993); quoting Lehnhausen v. Lake Shore Auto Parts Co, 410 U.S.
356, 364, 35 L. Ed. 2d 351, 93 S. Ct. 1001 (1973).
See also,
McDonald v. Board of Election Commissioners., 394 U.S. 802,
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808-809, 22 L. Ed. 2d 739, 745, 89 S. Ct. 1404 (1969); Kentucky
Association of Chiropractors, Inc. v. Jefferson County Medical
Society, Ky., 549 S.W.2d 817 (1977).
Darlene argues that KRS 61.542(2)(b) is not rationally
related to any legitimate state interest.
However, the trial
court found to the contrary:
The rationale for this particular
classification is clear. The statute is
designed to prevent a retired member’s exspouse from receiving his retirement benefits
after the member dies, as the member has no
other means of changing his beneficiary after
he enters pay status, and it is likely that
he no longer desires to support an ex-spouse.
The rational basis behind KRS 61.542(2)(b) is not to
foster “vindictive and illogical behavior by one spouse against
his or her former spouse.”
Rather, the statute attempts to set
out a consistent basis for dealing with the effect of a change in
marital status on a beneficiary designation after the member has
attained pay status.
We agree with Darlene that there may be
situations (such as her own) in which a retired member may wish
to keep his or her ex-spouse as a beneficiary.
Furthermore,
given the actuarial assumptions built into the Survivorship 100%
option which Steven chose, we fail to see how KERS would be
adversely affected if Steven were allowed to re-designate Darlene
as his beneficiary.
Nonetheless, the rational basis review in equal
protection analysis is not a “license for courts to judge the
wisdom, fairness or logic of the legislative choices.”
Heller v.
Doe, 509 U.S. 312, 319, 125 L. Ed. 2d 257, 270, 113 S. Ct.
2637
(1993); quoting, FCC v. Beach Communications, supra at 508, 124
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L. Ed. 2d at 221.
Moreover, even if the assumptions underlying a
legislative enactment are erroneous, they will survive a rational
basis scrutiny if they are arguably valid.
U.S. at 333, 125 L.Ed.2d at 279.
Heller v. Doe, 509
Although the assumptions
underlying KRS 61.542(2)(b) may not be correct in all cases, we
conclude that they are sufficient to support the statute’s
constitutionality on equal protection grounds.
Lastly, Darlene argues that KRS 61.542(2)(b) violates
her rights under the Fifth and Fourteenth Amendments to the
United States Constitution, insofar as it deprives her of a
property right without due process of law.
The trial court held
that Darlene has no property interest in Steven’s benefits, and
therefore, there was no violation of due process.
Darlene
contends that the trial court ignored this Court’s prior ruling
in finding that she has no property interest as beneficiary of
Steven’s pension.
In the previous appeal, this Court held that Darlene’s
right to receive benefits as Steven’s beneficiary was vested
according to the terms of the retirement benefits policy.
Thus,
Darlene had standing to bring a declaratory judgment action in
order to determine her rights under the policy.
Trustees, 936 S.W.2d at 779.
Wand v. Board of
However, this Court also held that
Darlene’s right may be subject to divestment, upon resolution of
the terms of the policy.
This Court’s prior ruling was limited
to whether Darlene had presented a justiciable controversy on
which to base her declaratory judgment action.
the merits of any of Darlene’s arguments.
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We did not reach
To have a property interest protected by procedural
due process a person must have a legitimate claim or entitlement
to it.
Applicants for Retail Package Liquor Licenses in Floyd
County v. Gulley, Ky. App., 674 S.W.2d 22, 26-27 (1984).
As
pointed out by the trial court, any property rights Darlene may
have are created and defined by the statutory scheme which
governs KERS.
scheme.
KRS 61.542(2)(b) is a part of that statutory
Based upon the plain language of the statute, the
divorce decree terminated Steven’s prior designation of Darlene
as beneficiary.
apply.
Consequently, the due process analysis does not
Board of Regents v. Roth, 408 U.S. 564, 33 L. Ed. 2d 548,
92 S. Ct. 270 (1972).
In conclusion, we note that enforcement of the plain
language of KRS 61.542(2)(b) does not leave Darlene without a
remedy.
First, Darlene is entitled to obtain enforcement of the
portion of her property settlement agreement which entitles her
to receive 31.182% of Steven’s monthly pension allowance during
his lifetime.
Steven’s designation of Darlene as the alternate
payee on the QDRO is completely separate from his designation of
Darlene as his beneficiary.
KERS may not refuse to enforce this
portion of a properly submitted QDRO.
See generally, Louise E.
Graham & James E. Keller, 15 Kentucky Practice Domestic Relations
Law, (2d ed., 1997) §§ 15.33 - 15.35, pp. 548-552.
Furthermore,
Darlene may have grounds to seek modification of the property
settlement agreement.
In any case, given the current statutory
regime, Darlene’s best hope for a remedy is against Steven, and
not against KERS.
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Accordingly, the judgment of the Franklin Circuit Court
is affirmed.
SCHRODER, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
SCHRODER, JUDGE, DISSENTING.
with this case.
I have a real problem
Prior to retirement, the parties chose the
“Survivorship 100%” retirement benefits payout.
At retirement,
the beneficiary and the benefits payable become etched in stone,
with actuaries based on the age and death of both.
The retirees
had bargained for and received less retirement benefits monthly
in exchange for 100% survivorship benefits.
I believe that the
retirees’ benefits become vested and the divorce should have no
effect on the survivorship benefits.
The bargain was to continue
retirement benefits until death, not divorce.
The policy
provision which terminates benefits based on divorce is against
public policy, and does not reasonably relate to the purpose of
retirement benefits - to provide benefits during retirement, not
during marriage.
BRIEF AND ORAL ARGUMENT FOR
APPELLANT:
BRIEF FOR APPELLEE
KENTUCKY EMPLOYEE RETIREMENT
SYSTEMS:
J. Baxter Schilling
Louisville, Kentucky
Robert W. Kellerman
Lizbeth Ann Tully
Stoll, Keenon & Park, LLP
Frankfort, Kentucky
ORAL ARGUMENT FOR APPELLEE:
Robert W. Kellerman
Frankfort, Kentucky
No Briefs For Appellees
Steven J. Wand
and
Attorney General of Kentucky
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