BOGGS v. BOGGS
Isaac Boggs married Sandra Boggs, the petitioner, after the death of Dorothy, his previous wife. When Isaac retired in 1985, he received various benefits from his employer's retirement plans, including a lump sum savings plan distribution, shares of stock from the company's employee stock ownership plan, and a monthly annuity payment. In 1989, following Issac's death a dispute over ownership of the benefits arose between Sandra and Issac's sons, Thomas F., Harry M., and David B. Boggs. The sons' claim is based on Dorothy's purported testamentary transfer to them, under Louisiana law, of a portion of her community property interest in Isaac's undistributed pension plan benefits. Sandra contested the validity of that transfer, arguing that the sons' claim is pre-empted by the Employee Retirement Income Security Act of 1974. The Federal District Court disagreed and granted summary judgment against Sandra. The Court of Appeals affirmed.
Does the Employee Retirement Income Security Act of 1974 pre-empt state community-property law allowing a non-participant spouse to transfer by a testamentary instrument an interest in undistributed pension plan benefits?
Legal provision: Employee Retirement Income Security
Yes. In a opinion authored by Justice Anthony Kennedy, the Court ruled that the Employee Retirement Income Security Act of 1974 (ERISA) preempts state community-property law allowing a non-participant spouse to transfer by a testamentary instrument an interest in undistributed pension plan benefits. Justice Kennedy said "ERISA's solicitude for the economic security of surviving spouses would be undermined" by allowing a previous spouse's heirs to claim a share of such benefits."
Argument of Marian M. Livaudais
Chief Justice Rehnquist: We'll hear argument next in Number 96-79, Sandra Jean Dale Boggs v. Thomas F. Boggs, et al.--
Mr. Livaudais: Mr. Chief Justice, and may it please the Court:
ERISA is a comprehensive Federal program designed to ensure that employees and their beneficiaries receive their retirement benefits.
It is also designed to be applied uniformly throughout the country so that employees in other parts... all parts of the country are treated equally.
How does ERISA accomplish this goal?
Additionally, Congress has created a list of statutory beneficiaries who are entitled to receive benefits under these retirement plans.
Only ERISA-designated statutory beneficiaries are included in the list, and only those beneficiaries are permitted to receive benefits.
Unknown Speaker: Well, doesn't your position raise a significant takings issue right off the bat?
Mr. Livaudais: I don't--
Unknown Speaker: Because a State recognizes a community property interest in something like a husband's retirement plan or other assets that he has acquired during the marriage by virtue of his efforts, that law creates... a community property law would create a property right in the spouse to half of whatever that asset is, and along comes an ERISA law later... after this marriage, the first marriage had been in existence and she had an interest there, along comes ERISA.
You say it preempts it, even though that would be a taking of her interest.
Is that right?
Mr. Livaudais: --No, Your Honor.
I don't believe--
Unknown Speaker: What's wrong with that analysis?
Mr. Livaudais: --Well, there are two problems.
In the first place, this Court has said on several occasions, including Wissner v. Wissner, that the Federal program does not constitute a taking under the Fifth Amendment.
Unknown Speaker: But that was a statute that had gone into effect and no one claimed that there was a prior thing that was affected by the statute.
Here, this fellow started working in 1949, and ERISA comes along in 1975.
Mr. Livaudais: This... well, at the time that ERISA comes along it preempts State law, the State community property law, so that it is inapplicable.
Unknown Speaker: Well, I... I'm not sure that's right, but even if it were, it would constitute a taking of the wife's interest acquired to that date.
Mr. Livaudais: Acquired to that date.
Well, the wife's interest that's acquired to that date is similar to putting money into a trust.
When she puts this money into the trust, she becomes... if she lives long enough she becomes a surviving spouse and is entitled to benefits as a beneficiary.
ERISA speaks in terms of beneficiaries.
Unknown Speaker: Well, under community property law in Louisiana she owned half of whatever he made from 1949 till ERISA at least was passed, and ERISA, even if you give it effect, can't take that without giving her compensation.
Mr. Livaudais: Her compensation was the anticipation of the benefits she would have received had she become... had she lived long enough to receive them coming out of the back end of the... a retirement program.
Unknown Speaker: Yes, but the Government can't simply substitute one piece of property for another piece of property without them being somehow equal.
Her share would simply disappear under your view in 1975, although it had existed from 1949 on.
Mr. Livaudais: Her anticipated benefits were... she received through the Federal program.
That was the basis in the Wissner case that said that the retroactivity in that case--
Unknown Speaker: Yes, but that was a Government life insurance policy.
That wasn't private property.
Mr. Livaudais: --Well, to the extent that the benefits she would receive as a... had she lived to participate in the retirement benefits are so much greater, and fuels... it's really tax dollars.
The tax exemptions and the tax deferrals fuel the ERISA engine that creates the wealth that creates the much greater benefits at the end than she would expect to receive just by investing some portion of her--
Unknown Speaker: What she would get by outliving her husband isn't what troubles me.
It seems to me that's like having an ownership in a lottery ticket, and by the time the event occurs that brings ERISA into it the lottery has been run and the ticket is a loser.
It's worthless at that point.
So also, it's worthless here once she dies.
So it's not her survivor benefits that concern me, but isn't she entitled... isn't she entitled to the... half of all the benefits that the husband receives?
Mr. Livaudais: --Not... no.
Unknown Speaker: In a community property State, isn't his entitlement to the retirement benefits really an entitlement that's half hers, and that does continue, whether she dies or not.
Mr. Livaudais: --She's entitled, as a... as the wife of the participant during retirement she would receive benefits and would enjoy the retirement benefits.
Unknown Speaker: Justice Scalia is completely capable of protecting his own question, but it seems to me that he's asking you--
--Go, Tony, I--
--He thinks that he... I thought that he was asking the question as a matter of Louisiana community property law, and then you tell us what ERISA provides, but as a matter of Louisiana community property law, is Justice Scalia not correct that the wife has an interest in the pension fund which, I take it, would have to be valued if the community is dissolved by divorce and, under... although I was surprised to find this, I understand the premise of the case is that this is subject to bequest under Louisiana law.
That's the premise that we take the case on, is it not?
Mr. Livaudais: I think so, yes, but--
Unknown Speaker: Well, is it the case, then, if there had been no ERISA at all, would the first wife have had something to bequeath by will?
Do you agree that she would have?
Mr. Livaudais: --Yes.
Unknown Speaker: So that premise is correct.
Mr. Livaudais: That is correct.
Unknown Speaker: I find that troubling, but what I'm not clear on is whether I have to reach that particular trouble.
Has anyone raised the issue of a taking in this case?
Mr. Livaudais: No, they haven't.
Unknown Speaker: May I also ask in that... does the record tell us when the husband's pension benefits vested?
Mr. Livaudais: No, I... well, I can't answer that.
I really don't think so.
Unknown Speaker: I couldn't find it myself.
Mr. Livaudais: But it really wasn't considered to be important.
It vested during the--
Unknown Speaker: But it would... of course, it would be important if you're claiming there was a taking of vested benefits.
You'd have to know when they vested and whether they vested.
Mr. Livaudais: --They vested during his first marriage to--
Unknown Speaker: But surely they didn't vest in 1949, when he first started paying in.
Mr. Livaudais: --No.
Unknown Speaker: No.
Well, if there is a takings problem in the case, though, isn't that a reason for interpreting ERISA so that it doesn't raise that problem by saying that there isn't the sort of preemption that you're arguing for?
Mr. Livaudais: Well, the result there is that if that... if you reach that and you say that there is no preemption, then State law in effect redefines who the beneficiaries of ERISA are, because if you say that there is no preemption of the community property law, then the nonparticipant spouse becomes--
Unknown Speaker: Well, not at all.
There's a statutory argument here to be addressed if we wish, I guess, and that's whether there was any alienation here at all under the statutory provision in ERISA.
If Dorothy's estate, if she had a community property interest in part of what was distributed to Isaac by virtue of Louisiana law, when she dies, why doesn't that interest, whatever it is, just continue to exist as part of her estate, and once there is a distribution, why doesn't her estate stand in her former shoes and say part of that is mine, and she... that isn't an alienation under ERISA.
Mr. Livaudais: --But the... well, you have to start with the premise that she has a property interest--
Unknown Speaker: Absolutely.
Mr. Livaudais: --in the plan.
Unknown Speaker: Absolutely.
Mr. Livaudais: Because without a property interest in the plan--
Unknown Speaker: Under Louisiana law.
Mr. Livaudais: --she can't have a property interest--
Unknown Speaker: But she doesn't interfere with anything.
Just at the time of his death her interest still remains, and it passes to her estate.
There's no alienation.
Mr. Livaudais: --Well, under the facts of this case what you say may be true, but that would not be true had she not bequeathed her... an interest to... had she not used the usufruct provisions of Louisiana law, because at the time she died, and then her husband remarried, the... he would have lost his statutory usufruct and therefore those... the sons would have been in a position to claim their benefits, or claim their interest in their father's... their mother's estate against their father's benefits and therefore he would... in effect, the participant would have, in effect, lost half of his benefits in that instance.
Unknown Speaker: Well, you focus a lot on the 1984 amendments to ERISA, but I thought that Dorothy Boggs died in 1979, so how could that affect it?
How could that... how could the 1984 amendments--
Mr. Livaudais: He didn't retire--
Unknown Speaker: --construe what the law was at the time she died?
Mr. Livaudais: --Well, he didn't retire until 1985, at which point the 1984 amendments applied and the selection or the choice to take the joint survivor's annuity was exercised.
Had he died--
Unknown Speaker: Now, he also got some lump sum settlement?
Mr. Livaudais: --That is correct.
Unknown Speaker: And some stock as well?
Mr. Livaudais: At the time he retired.
Unknown Speaker: Uh-huh.
What is the lump sum?
I mean, think just of the lump sum.
He gets... let's say he's got $200,000 in a lump sum from his employer.
Mr. Livaudais: Correct.
Unknown Speaker: His will says the $200,000 goes to a Martian, or it goes to Smith, or it goes to Jones, goes to anybody.
ERISA doesn't stop that, does it?
Mr. Livaudais: Yes, well... yes, because--
Unknown Speaker: ERISA says I can't take--
Mr. Livaudais: --Well--
Unknown Speaker: --$200,000 I got out of my pension plan which I happened to put in the bank and leave it to--
Mr. Livaudais: --Oh, you could... I'm sorry.
Unknown Speaker: --anybody I want?
Mr. Livaudais: I'm sorry.
He had rolled it over into a--
Unknown Speaker: I'm not saying what happened here.
I'm trying to say--
Mr. Livaudais: --If it was in his bank account or in a coffee can in the--
Unknown Speaker: --No, I just say this, I write a will--
Mr. Livaudais: --he could leave it to anyone.
Unknown Speaker: --I write a will, and my will says, the money I get in a lump sum from my pension fund, when I die I would like that will to go to John Black, all right.
I can do that, can't I?
Mr. Livaudais: Yes.
Unknown Speaker: And can I leave it to my wife?
Mr. Livaudais: You can leave it to your wife.
Unknown Speaker: Yes, and if the State law says that this money has to go to John Black or to my wife, is there any problem with that?
Mr. Livaudais: No.
Unknown Speaker: No.
And if State law says when you die the reason that it has to go to your wife is because she had a community property interest, is that any different?
Mr. Livaudais: No.
Unknown Speaker: No.
Then if that's no different, and if the wife, knowing that she gets it, happens to write a piece of paper in advance that says when I die, that money will go to my children, is that a problem?
Mr. Livaudais: Well, the problem is that it's not hers to leave--
Unknown Speaker: Oh, no, no.
She says, if I get this money when my husband dies, because State law gave it to me.
I will then give it to my children.
Is that a problem?
Mr. Livaudais: --No, it is not.
Unknown Speaker: All right, then how is that different from this case as to the $200,000, except for the rollover into the IRA, which is separate, which I think has nothing to do with it?
But except for the rollover into the IRA, how is that different from this case as to the money?
Mr. Livaudais: Well, when the--
Unknown Speaker: I mean, I don't want to have mixed you up with all the questions, but as I'm seeing it, all this is is a State law called a community property law that says what will happen on the death of the husband to the money that was a fixed sum that came into the possession of the wife because of State law community property, and she later on left it by will but she didn't, because there was another State law... or whatever, but to somebody else.
Maybe the SG will answer that question, because I... and if the answer depends on the IRA, that, I think, had to do with tax purposes.
I don't see whether you put it--
Mr. Livaudais: --Well--
Unknown Speaker: --but that's what I'm thinking and I'd like to get a response from that either from you or from the SG.
Mr. Livaudais: --Well, the... ERISA preempts the designation, or sets out who the beneficiaries are of the property.
The participant is the beneficiary, the first beneficiary.
His nonparticipant spouse has no... under ERISA has no rights in the plan during the life of the participant.
Unknown Speaker: But she would if she divorced him, right?
Mr. Livaudais: --Well, but State court could, under the QDRO, give her rights in it.
She does not automatically have rights.
Unknown Speaker: Yes, but Judge Fletcher said one of the many anomalies in this case is, you take a woman who under State law is a coowner, and she stays a coowner.
If before she dies, predeceasing her husband, she divorces him, then her coownership can be realized and she can pass it on to her children.
But if she should stay with him till her last breath, then her coownership vanishes, and I suppose Judge Fletcher was saying, if there is another construction that's reasonable, we ought to apply that, rather than one that leads to this very odd result.
Mr. Livaudais: Except that the results is that under that... under Judge Fletcher's construction she basically would have the surviving participant who has anticipated receiving these benefits and has contributed to them thinking that he is going to retire, he suddenly has to divide his benefits with people who are not retirees.
Granted, they... and they're not necessarily his children.
They could... it could be a charity to whom she may have left this money.
Unknown Speaker: Ms. Livaudais, could I ask you, regarding Justice Breyer's question, do you acknowledge that the only effect of a community property law is to say how the husband's property goes when he dies, which seemed to me to be the hypothesis of Justice Breyer's question?
Doesn't the community property law make it her property immediately, before the husband dies, so it isn't a question of the husband getting all the money at the end and State law just saying where the husband's property goes.
Your contention is that it is... or the community property law says that it is her property.
Half of it is hers at the outset.
She doesn't get half at his death.
Mr. Livaudais: No, but it... but my contention is that ERISA preempts the application of that community property law from the moment that ERISA was passed, and therefore ERISA dictates that these benefits are different.
They are special property.
They are not governed by the State property laws, whether community property or any other kind of State property--
Unknown Speaker: Mrs. Livaudais, do I understand this to be the practical consequence of your position: for more and more older people, the pension, if it's not the principal asset, but certainly a principal asset, and so to the extent of that pension, the Federal Government has done away essentially with the community regime, and is there anything specific in the statute, or... that suggests that Congress really was trying to undo, destroy the community?
Mr. Livaudais: --Congress was very clear on the people who Congress wanted to receive the benefits.
That was the participant and the participant surviving supouse.
The purpose is to assure that these people in their older age are supported and are not... it supplements their social security and they are not dependent on the State for additional support, and that is the purpose behind any... in ERISA.
And therefore, in order to make sure that the benefits are confined to the people who are the employee and the employee's surviving spouse... the QDRO's not concerned in that.
Only the people who are named in the statute as beneficiaries are entitled to--
Unknown Speaker: But this is so peculiar, because here is an example of a couple who were married for many, many years, until the first wife died, and under community property law in Louisiana she had a half interest in all that.
And how is it that we would construe ERISA to preempt that, when this may well be the major asset of the couple, indeed their only greatest asset from all those years of work, and you want us to say that Congress just intended to wipe that out, to take it, even if it's a taking, and I think this is a remarkable construction that you're asking us to give this law.
In ERISA's preemption clause this Court has been careful, has it not, to protect the role of traditional State provisions?
Mr. Livaudais: --Except when it related to the act, did damage to the act.
The purpose in... thank you.
Unknown Speaker: Thank you, Ms. Livaudais.
Mr. Wolfson, we'll hear from you.
Mr. Wolfson, does the Government recognize any difference between the two kinds of things involved here, one being an annuity and the other being a lump sum?
Argument of Paul R. Q. Wolfson
Mr. Wolfson: Yes.
Well, Mr. Chief Justice and may it please the Court:
We believe that the interests in both are preempted, and we start... I'd like to start with ERISA's broad... broad but common sense preemption clause, the relate-to.
In our view really the ownership of plan assets is the issue here, and nothing could relate to a plan more than the basic question of who owns the assets in... who owns the assets in the plan, and that's a... that is what the application of State community property law to an ERISA plan--
Unknown Speaker: But under that, do you... there's been a taking here--
Mr. Wolfson: --I--
Unknown Speaker: --and we normally would avoid resting on some constitutional ground if we can possibly construe the statute some other way.
Mr. Wolfson: --Well, obviously we disagree that there's a taking here, and I'd like to address that first.
And the first thing is, what the first Mrs. Boggs... one has to look to what the first Mrs. Boggs' property interest in the plan would have been before 1974, because it's only pre-'74 where the taking problem might arise, and what she really had was an inchoate or contingent interest in the right to control benefits that she would have received from the plan once Mr. Boggs retired.
Unknown Speaker: That's not my understanding.
What if the benefits had vested?
Mr. Wolfson: Well, we don't know whether the benefits had vested, but even if the benefits had vested, Justice Stevens, I think in effect the only thing that has been removed from her property interest here is the right to make a testamentary distribution of those benefits.
Unknown Speaker: She had a right under Louisiana law, I presume, if it's like most community... to prevent any expenditures in fraud of the community.
There are all sorts of ancillary provisions in community property--
Mr. Wolfson: One would... I mean, one would also have to consider the plan to see that... those might have provided her with some protections also, but what she can't do as a result of ERISA here is pass on her interest to her children.
Unknown Speaker: --Which is certainly one stick in a bundle of rights.
Mr. Wolfson: It is one, but I don't think that the removal of that right amounts to a taking, because, for example--
Unknown Speaker: Well, let's just say no will.
She has an estate left, and subsequently he dies.
Now, her estate surely is entitled to half.
Mr. Wolfson: --But what Louisiana could have passed... I mean, by hypothesis Louisiana could have passed a law that said no, when she died her interest had to go to her husband.
That was the terminable interest rule that has existed in other community property States.
It could have enacted that, and the effect of that would have been to say, although she might have had a community property interest in her plan assets, you know, or have expected to receive half of them when he retired, and assuming she was alive when he retired, she would have had to hand over everything to him.
Unknown Speaker: But that's not Louisiana law.
Mr. Wolfson: But Louisiana could have passed that law, and I think that is really the effect of what ERISA did in her situation.
That is to say--
Unknown Speaker: I'm not so sure I'm willing to say Louisiana could have done that.
Mr. Wolfson: --I guess although it certainly--
Unknown Speaker: We've got these Indian claims, for instance, the--
Mr. Wolfson: --That's right.
Unknown Speaker: --Federal efforts to prevent further fractionalization.
But this Court in earlier cases has certainly recognized a property interest in--
Mr. Wolfson: Yes.
I think that... I mean, obviously in those cases what we have argued is that in light of the Court's prior decisions the Government couldn't take away her right to make any distribution at all of any interest she might have had, but here, what it does is, it... what ERISA did would be to transfer her community interest to her husband, which she might well have done anyway to gain the benefit of the--
Unknown Speaker: --Yes, but she didn't do it, and the State didn't pass the law, and is it fair to say this, that if we assume that in fact there has been a taking to the extent suggested--
Mr. Wolfson: --It--
Unknown Speaker: --your argument still... pardon me?
Mr. Wolfson: --It hasn't been suggested in the lower courts, and hasn't been raised, and we don't know to what extent--
Unknown Speaker: Right, but it's being raised here I think in aid of the question how should we construe or how should we apply as vague a preemption provision as relates-to, and I thought from your brief that you in effect would address that question by saying, you really don't have a real issue of how to construe the vagueness of relates-to.
Because even if there weren't a preemption clause in this statute, you've got good old garden variety conflict preemption here as between what ERISA provides for surviving spouses and what community property law, at least as we are suggesting it, could be construed would otherwise provide, and you've got to face the fact, I think you would say, that there is that conflict preemption.
Am I being fair to your position?
Mr. Wolfson: --I think certainly there is a direct conflict with the provision for the survivor annuity for the... that is, ERISA itself says a surviving spouse... as a matter of Federal law, a surviving spouse is entitled to receive a survivor annuity unless she has elected to waive that benefit, assuming there is a surviving spouse and unless she has elected to waive that benefit beforehand by a notarized statement, and so forth.
Unknown Speaker: And you say that cannot be construed to be a survivor's annuity based upon whatever may be left under State law.
You're saying that has got to be determined in relation to either the contributions or the defined benefit of the plan, period.
Mr. Wolfson: Yes, and in fact when the... when Congress enacted the survivor annuity, and it... it really, I think really when Congress enacted the REA it really sort of addressed directly the situation of spouses' rights and plan benefits and occupied the field, if you will, but it said it has to be actuarially determined under certain rules which would relate to the annuity that the participant would have had if he'd only been... if only he had been around.
Unknown Speaker: Okay.
Mr. Wolfson: So it set up a Federal rule for determining how the survivor annuity is--
Unknown Speaker: Well--
--the lower courts now, before the 1984 amendments, had construed the statute not to make such a preemption.
This Court hadn't ruled on it.
But then Congress got busy and said, wow, we've created a problem here, let's look at it, and they passed this so-called domestic relations order notion hoping to avoid just what you're talking about--
Mr. Wolfson: --Well, I think that the--
Unknown Speaker: --and to address the problem of the first spouse--
Mr. Wolfson: --Yes, I--
Unknown Speaker: --or the dependent.
Mr. Wolfson: --But what I would suggest is that when Congress enacted the domestic relations order it looked directly at the very compelling situation of the first spouse who would have been expecting to look to be supported by the spouse, or to share in those benefits.
Unknown Speaker: Well, we might even shoe-horn this into that domestic relations order.
Mr. Wolfson: I--
Unknown Speaker: It says if it's made pursuant to a State domestic relations law, including a community property law, and it says that any court in the State can issue an order that is qualified under this plan.
It doesn't limit it to some specialized family court, or something.
Mr. Wolfson: --Well, I think when Congress said domestic relations law, including community property law, it might have done that for two reasons--
Unknown Speaker: Well, and it also defined ultimate payee for these purposes as any spouse, former spouse, et cetera.
Mr. Wolfson: --If that spouse has a domestic relations order that's been qualified, but there are two reasons--
Unknown Speaker: Could a probate court--
Mr. Wolfson: --No.
Unknown Speaker: --be such a court?
Mr. Wolfson: No.
Unknown Speaker: Well, it says any court.
Mr. Wolfson: It says any court applying domestic relations law, which is the law--
Unknown Speaker: Includes community property law.
Mr. Wolfson: --Yes, but the reason why I think Congress did that... I think there are two.
First, in some States domestic relations law is in a separate... you know, in Louisiana, in fact, it's in a separate section of the code than community property law.
Domestic relations law would normally be thought of in terms of support as child support and alimony, and--
Unknown Speaker: I'm just looking at the provisions of the 1984 amendments.
Mr. Wolfson: --But when you put them together--
Unknown Speaker: And I think you could even shoe-horn this into that.
Mr. Wolfson: --I don't think so, because when you put them together, I think what Congress was trying to consider was the law that would be applied in domestic relations proceedings, specifically legal separation proceedings and dissolution of a marriage, and child support proceedings, and it wanted to be sure that the courts could consider the community property law, and there's a specific... could have been a specific reason for that.
In Hisquierdo and some other cases, the Court had looked at statutes that allowed division of benefits to enforce alimony orders but not community property orders.
I believe in Hisquierdo the railroad retirement benefit statute specifically had an exception to the antialienation clause for alimony but not for community property, so Congress was removing the doubt that the State court, when it was enacting a domestic relations order, could make an equitable distribution of the property by considering among other things any right that might possibly have been said to arise under State law by virtue of the community property regime and not limited to alimony.
Unknown Speaker: Thank you, Mr. Wolfson.
Mr. Deano, we'll hear from you.
Argument of Edward J. Deano, Jr.
Mr. Deano: Mr. Chief Justice, and may it please the Court:
The case from the Fifth Circuit which we're seeking to uphold is a simple case.
Unknown Speaker: I'd like to ask you a question, but I'm afraid you're going to agree with me.
But maybe you won't, which would be lucky, and that is, I'm thinking of these as two separate things.
One is the annuity, and the second is everything else, just plain dollars.
Now, the annuity, it seems to me you run into a big problem of rather specific provisions that say how annuities are supposed to be set up, but as to the other, you're just going to say no.
I mean, I don't see what the conflict with ERISA is to leave the $200,000 to your wife, or to your cousin, and if this all happens through community property law, why is that any different than if it were the law of wills, and even if community property governs property during life, so what?
I mean, I don't understand... maybe you could explain what their argument against that is and what your reply is.
Mr. Deano: First of all, with regard to the lump sum payments, clearly the antialienation provisions, once they've been paid out of the plan, don't apply, and there's a whole line of jurisprudence that sets that out.
But what's I think very important conceptually to understand, and this Court has spoken to that in the Mackey case and also in the Fort Halifax case, is there's a distinct difference between State laws that deal with benefits and those that deal with plans, and that the preemption clause is not designed to preempt State laws that deal with benefits, and that makes sense.
If you preempted the law that dealt with benefits, you could never get to defined rights, because those laws would have been preempted, so you couldn't have a QDRO.
Everything would end up in Federal court if you preempted the laws.
So the remedy to deal with laws that are troubling, State laws that are troubling, are the antialienation provisions, and some cases have said that you preempt laws through the antialienation provisions, which doesn't make a lot of sense either, and I hope that I'm answering your question.
Unknown Speaker: Your part, the part that you want to answer directly is the other part, I guess, which is 29 U.S.C. 1055 has, like, about 15, or 10, or 5 specific--
Mr. Deano: Well, I--
Unknown Speaker: --things that are supposed to happen to these pensions, and that, why doesn't that preempt community relations... community property law insofar as it's to the contrary?
Mr. Deano: --I think Justice O'Connor drew a point that I think is very salient to that, and that is whether or not a probate order should be defined, or should be able to be qualified as a QDRO, and it's very interesting, I think, to take a look at the antialienation provision in 1056.
The general antialienation provision in 1056 pre-REA 1984 was held not to affect property interests, marital property interests.
Then there was an additional sentence that was put in, and was held to that, and it's a much narrower antialienation protection, and what it says is... and I'm quoting from section (d) in paragraph... in (3), that this alienation shall apply to the creation, assignment, recognition of a right, a benefit which is payable with respect to a participant pursuant to a domestic relations order.
So one of two things happens here.
Either the right, which is... certainly was designed to apply to community property inheritance rights which were not contained in the previous general antialienation... the right, in order to be prohibited through the antialienation provision, must be one that is derived pursuant to a domestic relations order.
So one of two things happens.
Either a probate order is a domestic relations order, in which case that antialienation provision would apply but so would the exception of a QDRO, which requires two things, that it be an anti--
Unknown Speaker: What I was thinking of is, I think there's a provision that says you have an annuity, and your employer gives you an annuity.
Let's say it's $2,000 a month.
There's going to have to be a provision in there that if you die your present wife gets at least $1,000 a month.
Isn't that right?
Mr. Deano: --That's correct.
Unknown Speaker: All right.
If that says that specifically in the statute, if there's a community property law that says, sorry, your present wife doesn't get $1,000 a month, rather, that $1,000 a month, which is all that's left of the annuity, goes to the first wife, that would seem like a direct conflict.
Why isn't it?
Mr. Deano: Because this Court has decided that those types of conflicts are treated in the context of the antialienation provisions, not the preemption provisions.
Unknown Speaker: Well then, why?
Then tell me, because I don't know this area that well.
It sounds to me as if the statute says that your pension has to provide an annuity of $2,000 to Breyer until... as long as he's alive, and then $1,000 to his present wife.
The community property law says, sorry, the first wife gets the $1,000.
That sounds like a direct conflict under basic principles of preemption law, and I'd like to know why it isn't.
Mr. Deano: Because the provision that provides for the annuity is a directive to a plan to provide for that annuity in its plan.
It's a directive to administrators to draft a plan that creates this type of function, so if we began to say, plans drafted by administrators can preempt State law, we wade into very dangerous territory.
Unknown Speaker: So Congress doesn't care what the result is.
It just wants... it just insists that the administrators draw up a certain scheme and it's okay if the States adopt their laws in such a way that the scheme doesn't produce any particular result.
All Congress wants is the abstract ideal of an administrative plan?
Mr. Deano: No--
Unknown Speaker: That doesn't seem to make any sense.
Mr. Deano: --No.
What Congress was looking for is that a plan will have to operate first in the context of State laws, but also with the power of its antialienation provisions to operate within State law, so that the antialienation provisions are the power with regard to State laws that deal with benefits.
Unknown Speaker: Is the $1,000 annuity that Justice Breyer was asking you about, is that at issue here?
I thought that was not at issue.
Mr. Deano: That is a part of the claim--
Unknown Speaker: She's not claiming that she gets the later wife's--
Mr. Deano: --That has been set out as part of--
Unknown Speaker: --annuity, is she?
Mr. Deano: --That is set out, has been set out as part of the claim.
Unknown Speaker: A piece of it.
Part of it, not all of it.
Mr. Deano: Oh, no--
Unknown Speaker: Part of it, not all of it.
Mr. Deano: --It's an insignificant portion of the claim.
Unknown Speaker: I had thought that the brief said that that was not the issue at all.
Mr. Deano: I'd also like to just note--
Unknown Speaker: Well, is it?
It is part of the issue?
Mr. Deano: --Yes, Your Honor.
Unknown Speaker: There is a claim for a portion of the annuity payments going to the second wife?
Mr. Deano: That's correct, and before I--
Unknown Speaker: No longer a claim.
You prevailed on it, in fact, in the Fifth Circuit, right?
Mr. Deano: --Excuse me?
Unknown Speaker: In the Fifth Circuit--
Mr. Deano: Yes.
Unknown Speaker: --didn't you succeed on the claim, and the claim included not only the lump sum amounts, a piece of those, but also a piece of the survivor's annuity?
Mr. Deano: Which... that's correct, and to maybe make that somewhat more understood, under Louisiana law what is actually the claim is accounting for a usufruct, meaning--
Unknown Speaker: From the three sons, yes.
Mr. Deano: --accounting for the use of the property.
Not necessarily that property itself, but what you're calling upon, and the right is an account for the use of the property during the life of the user.
Unknown Speaker: Yes, but the result of it would be that the current wife, who's getting something like $1,800 a month, or something like that, that she would in fact have to pay over a piece of that, whatever is the... it could be reduced to a lump sum, but a piece of her monthly benefits.
Mr. Deano: That's correct, and I think--
Unknown Speaker: What kind of a plan was this?
Where does this survivor's annuity come from?
Did payments come from Isaac during his life that went into a specific fund, and it was that fund that's used to pay out the survivor benefits, or is it some other kind of plan?
Mr. Deano: --It's my understanding that the total pension benefits, meaning life insurance policies, meaning lump sums and this annuity, were provided over the life of the entire employment of Isaac and during that--
Unknown Speaker: Not out of any specific fund that matched, dollar for dollar, what he put in?
Mr. Deano: --I don't believe so.
Unknown Speaker: What if Isaac had died before his retirement and without having remarried?
Would his heirs have received anything?
Mr. Deano: If Isaac... under Louisiana law, if Isaac--
Unknown Speaker: He hadn't remarried.
Mr. Deano: --If he had not remarried--
Unknown Speaker: And he died before any survivor's annuity had been paid, what would happen?
Mr. Deano: --The heirs of Dorothy would have--
Unknown Speaker: His heirs.
Mr. Deano: --And his heirs.
Unknown Speaker: Would his heirs get anything?
Mr. Deano: His heirs would inherit his property, his part of the community property.
Any separate property owe an accounting to the heirs of Dorothy.
Unknown Speaker: Would they be entitled, if they were not dependent children, to any portion of the survivor's annuity in that circumstance?
Mr. Deano: If Isaac... oh, had Dorothy survived?
Unknown Speaker: No.
She's gone, he's gone.
There's no survivor.
There are no survivors except adult children.
Mr. Deano: --Well, I don't believe under the plan there would be any survivor's annuity.
Unknown Speaker: Of course not, and--
But that's the puzzlement about this case.
That's been the puzzle.
How can the first wife claim the annuity that wouldn't have existed if the first wife hadn't died?
Mr. Deano: Because that annuity--
Unknown Speaker: I mean, had he not remarried there would have been no annuity.
At the time she died, that was it.
The right to an annuity comes about later because he remarries, and now the first wife, who at the time of her death had no claim, gets a right to the second wife's annuity.
It seems very strange to me.
I can't imagine--
Mr. Deano: --That right, that annuity was paid for first of all with community funds, and also--
Unknown Speaker: --Well, but you just told me they weren't traceable.
You know, this is a real puzzle to figure out, and if you acknowledge in the circumstances I ask about that, oh, well, then there wouldn't be a survivor's annuity, I'm not sure that that creates a problem then when the first wife died.
Mr. Deano: --Perhaps I misunderstood your question with regard to a fund.
Unknown Speaker: Well, I--
--I thought the--
Mr. Deano: If the money was paid from community funds--
Unknown Speaker: --Why couldn't I think that what was bought with the community funds was, as I described it earlier, a lottery ticket?
The wife has a chance.
If she outlives the husband, she has a right to this annuity, but at the time of her death, the lottery was over.
She had lost.
There's nothing left to that.
Mr. Deano: --Because... and the answer to that question is because she has a certain claim, certainly on the benefits that her husband--
Unknown Speaker: That's the other part of the case.
I acknowledge that.
Mr. Deano: --Okay.
Unknown Speaker: That's a different part, the husband's--
Mr. Deano: And those benefits were reduced due to this... due to this annuity, so that the community funds not only paid for the survivor's annuity, but the other funds that she would otherwise have a claim upon, which were the funds that were received by her husband, were reduced in order to purchase this annuity.
Unknown Speaker: --So there's this right as a matter of State law--
Mr. Deano: That's correct.
Unknown Speaker: --That as a matter of State law, husband and wife 1 work together for 30 years, build up a million dollars in an IRA, or in some kind of a retirement account with a pension, and at the end, eventually wife 1 is long... is gone, but eventually that million is used to buy an annuity which says, $2,000 a month to husband, on husband's death, $1,000 a month to wife 2.
You are saying under the law of Louisiana, since that $1 million which paid for the annuity was jointly built up during their community, wife 1 is entitled to one-half the proceeds of that eventually, or some share of that.
Is that right?
Mr. Deano: And also, that's correct--
Unknown Speaker: And that is the State law of Louisiana, and my question was, why, in fact, doesn't this particular provision that says half has to go to wife 2 trump that, and your answer was what it was.
Is that where we are?
Mr. Deano: --That's correct.
Unknown Speaker: All right.
Mr. Deano: And the answer is that the State laws dealing with benefits, and it's been held, are not preempted but they have to deal with the antialienation provisions in ERISA.
Unknown Speaker: Can you explain that to me further, because that's the point... I wanted to come back to that.
I don't understand your argument about the significance of the antialienation provision if we assume a conflict which would otherwise give rise to a preemption.
Mr. Deano: This Court has stated that, first of all, the State laws that deal with benefits, and this is in Fort Halifax v. Coyne, are not preempted.
They have to... and that's been followed in a line of jurisprudence with Guidry v. Sheet Metal Workers and other cases, that--
Unknown Speaker: So you're saying there's no conflict preemption under--
Mr. Deano: --No.
What I'm saying is that when there is a conflict, preemption is not the remedy.
Unknown Speaker: --Okay.
Mr. Deano: --has not... has been rendered not the remedy for a conflict or troubling situation with State laws, State laws dealings with benefits as opposed to State laws dealing with benefit plans.
Unknown Speaker: What is the remedy, if--
Mr. Deano: --The remedy is the antialienation provisions in ERISA, and this Court has reasoned that if the law, the State laws first of all were preempted there would be no need for the antialienation provisions, and so the fact that the antialienation provisions are there are certainly an indication that the State laws that deal with benefits are not preempted, and that line of cases has been--
Unknown Speaker: --Why isn't there... now, I'm sorry, this is probably a very stupid question, but why isn't the antialienation provision explicable in terms of rights under the ERISA plan as distinct from rights under State law?
Mr. Deano: --The... this... the speakings of this Court in the case of Mackey, and also because of the congressional... the screening congressional intent prior to the enactment of the REA act indicated it is not... it is not Congress' intent to preempt State laws dealing with marital property rights.
Unknown Speaker: May I--
Mr. Deano: That has been--
Unknown Speaker: --Are you through with your answer?
I don't want to interrupt you.
Mr. Deano: --And so that that combination, and the fact that if you begin to preempt State laws, for instance you'd never be able to get to an exception to the antialienation provision, for instance, a QDRO, because the laws that would be the basis for the QDRO would be preempted.
So that the remedy is not preemption, it's dealing with the antialienation provisions.
And to answer more specifically your question, the Court reasoned that the preemption is not the useless... would not be the useless one, as opposed to the antialienation definition of a QDRO, because it was Congress' intent to show that any preemption of domestic rights or domestic laws was not the intent, and therefore they put that into the--
Unknown Speaker: May I ask you three very brief questions?
Mr. Deano: --Yes, Your Honor.
Unknown Speaker: One, does the record contain the plan?
Mr. Deano: To my knowledge, it does not.
Unknown Speaker: I couldn't find it.
And 2, do you know that when your... when the first wife's... do you know when the husband's rights in the plan vested?
Does the record tell us the answer to that?
Mr. Deano: The record... first of all, the record indicates in a stipulation of facts that the rights had vested, and I also wanted to point out that the issues of a taking was raised and argued in the district court level, argued in... also argued in the Fifth Circuit?
Unknown Speaker: Had vested when?
Justice Stevens asked you when?
Does the record tell us when the husband's rights vested?
Mr. Deano: To my knowledge the record does not.
Unknown Speaker: It does not.
And... but I... the other... you have answered my third question.
I was going to ask you whether the takings issue had been raised, and you did argue that in the district court and in the court of appeals, and the court of appeals didn't address it--
Mr. Deano: No, Your Honor.
Unknown Speaker: --When you say they had vested, had vested when, by when?
By the time of the husband's death?
By the time of the wife's death?
Mr. Deano: They had vested at the time of the wife's death.
Unknown Speaker: Of the first wife's death?
Which was '79.
Mr. Deano: That's correct.
Unknown Speaker: Have there been cases in Louisiana where the Louisiana legislature has passed laws changing the rights of spouses in community property, saying that what was once raw expectancy is now vested, and have those... and if that has happened, have any of those under State law been challenged as takings, or retroactive--
Mr. Deano: To my knowledge, the only changes in community property laws that have come about have been where the parties have been able to agree to make those changes.
Unknown Speaker: --May I... I want to clarify one thing on the takings issue.
Did you argue that there was a taking in 1974 when the statute was enacted, or when did you say the taking took place?
What was your theory?
Mr. Deano: I believe the argument was first of all that there was a takings... one in '74--
Unknown Speaker: You did argue that there was a takings in '74.
Mr. Deano: --And there was one... it was taken--
Unknown Speaker: So you must have argued that there had been a vesting prior to '74, but there's no finding to that effect.
Mr. Deano: --Right, but also a taking in that the probate order was rendered in this matter in 1980, 4 years before the enactment of the REA act, and there's discretion that the... in section 302 that allows orders that don't meet the qualifications of a QDRO to be excepted.
Unknown Speaker: But I--
Mr. Deano: And that is another point as to why antialienation provisions are not allowed to preempt State laws, because they're drafted by plan administrators that do have discretion in the drafting of those plans.
Unknown Speaker: --Is it--
--The Fifth Circuit interpreted the statute in such a way that there was no takings problem.
It held for you down the line.
But one of the arguments that was raised on the other side about the Federal interest is, sparing the plan from being burdened with all these peculiarities of usufruct and forced heirship and all that, and we're also been told by one of the briefs that there are peripatetic workers who walk in and out of community property States, and the whole thing would be a nightmare for administration, so how do you respond to that?
Mr. Deano: I think the accounting problem is somewhat of a bogus issue in that the administrator just deals with the judgment that's presented to them, and the rights that are contained in the judgment.
An administrator is never called upon to do... to touch a calculator with regard to those types of problems.
Unknown Speaker: Of course, the administrator would have to comply under present law since '84 with a qualified domestic relations order.
Mr. Deano: That's correct.
Unknown Speaker: If this is not a qualified domestic relations order, then where does that leave you?
Mr. Deano: Well, under the amendments to the REA act, if it's not a qualified domestic relations order, it doesn't come under the enhanced antialienation sanctions that existed before.
I mean, that existed in the enactment of the REA.
Unknown Speaker: Well, could--
Mr. Deano: It follows under the old ones in which it was allowed.
Unknown Speaker: --Could Dorothy have given her interest directly to the sons during the... before the retirement of Isaac?
Could she have signed a deed of gift to her sons?
Mr. Deano: --Yes, Your Honor.
Unknown Speaker: Of her interest, to the extent she had one, to her sons?
And if so, would that require the pension administrator to abide by that?
Mr. Deano: If it was--
Unknown Speaker: Will that possibly be an alienation?
Mr. Deano: --If it was to a benefit that was payable, it possibly could be an antialienation--
Unknown Speaker: Well, wait a minute.
Under the statute it would be payable, a certain amount to the husband, and thereafter a certain amount to the then surviving wife, if there was one.
Mr. Deano: --Keep in mind that the funds for the most part that we're talking about in this matter had left the plan 10 years ago, for the most part, and no administrator will ever have to deal with any of the things with regard to this case.
Unknown Speaker: But you didn't answer my question.
Mr. Deano: With regard to a transfer, it would be just a written donation that would be handed to an administrator.
Unknown Speaker: Deed of gift to children, copy to administrator?
Mr. Deano: --Right.
My... I believe that that could be considered a non--
Unknown Speaker: An alienation.
Mr. Deano: --An alienation if it was to one that was payable--
Unknown Speaker: Well then, why isn't a contemporary testamentary provision an alienation?
Mr. Deano: --Because first of all this was not a testamentary alienation.
This happened under operation of Louisiana law.
This was not--
Unknown Speaker: No will here.
Mr. Deano: --There was a will, but the children's names were not mentioned in the will at all.
They were forced heirs, and it happened as an operation of law, so she didn't make... as opposed to the example that you gave, she did not make a transfer, and that has been... an alienation has been defined as a will of transfer.
Unknown Speaker: So according to you, in this situation there was no alienation at all during the existence of the plan.
Mr. Deano: There was a--
Unknown Speaker: Because Isaac had retired, and he got whatever he got, and what she did arose... what happened arose by virtue of Louisiana law after the benefits had been distributed.
Mr. Deano: --That's correct.
Let me touch just a little bit more on the concept--
Unknown Speaker: Mr. Wolfson, before you go on, two questions.
Mr. Deano: --Yes, sir.
Unknown Speaker: One, would you explain for us what happened to the lump sum that was alienated, or that was distributed?
Mr. Deano: The lump sum was rolled over into an IRA.
Unknown Speaker: Now, did he have options to... was the money given to him, and did he then put it in an IRA, or was it within the terms of the plan?
Mr. Deano: It's my understanding that he took the... they came into his ownership and then he rolled it over into an IRA.
Unknown Speaker: Okay.
One other question.
Let's say that Isaac, that his wife pre... she passed away in 1979, that he was quite grieved, and did not remarry, and assume that the gift that Justice O'Connor spoke about was made to the kids, or it was passed on as it was in this case, but Isaac did not remarry.
What would the children get in those circumstances?
Mr. Deano: First they would have had... they would have received property--
Unknown Speaker: Well, let's just... from the plan.
That's all I'm interested in.
Mr. Deano: --Oh.
Unknown Speaker: Under this plan, what would they get?
Mr. Deano: They would not at that moment get anything, but they--
Unknown Speaker: No, when he died.
Let's say everything is exactly the same as it is now.
Mr. Deano: --All right.
Unknown Speaker: Except, he doesn't remarry.
Mr. Deano: Okay.
The only thing... he doesn't get... they do not get a thing from the plan.
Unknown Speaker: What about the $150,000?
Mr. Deano: Yes.
Unknown Speaker: So the $150,000 you treat separately.
Let's say that's... we have to assume that went to a bank account or something.
Is that accurate?
So the lump... there's a difference between the lump sum and the stock as opposed to the survivor's annuity.
Mr. Deano: That's correct.
The consideration for the survivor's annuity, however, was the reduced retirement moneys paid to Isaac during the remainder... upon his retirement, for which he purchased this--
Unknown Speaker: Well, but that's the deal.
That's just like the husband and wife agreeing to sell a piece of... sell an automobile for a boat.
I mean, you don't value what the wife gets on the basis of the boat.
If they went into the deal and traded the one for the other, it's gone, and what you have is what's in front of you, so it doesn't seem to me to say, well, they got this money only because they took less of something else... that was what they bought.
Mr. Deano: --Except there was something there at this moment, Your Honor.
I mean, it would be like presuming there wasn't something there when in fact there was something there.
I would just like to close by mentioning again that the remedy on State laws that confuse or are troubling to Federal concepts with regard to ERISA is not preemption, that it comes under the antialienation provisions.
Unknown Speaker: Mr. Wolfson, I'm sorry to interrupt you.
Do you have a better argument for the lump sum than you do for the annuity?
Mr. Deano: My argument with regard to the lump sum is the antialienation provisions do not apply once they've left the plan.
Unknown Speaker: But do you have a better argument for the lump sum than the annuity?
Mr. Deano: Yes.
Unknown Speaker: Justice Thomas is asking you to weigh the two arguments, which do you think is the better one, I believe.
Mr. Deano: --Oh, I would find that there are... there is equal authority from this Court for both of them.
Probably the occasion has risen more with regard to the antialienation protections following after the benefits leave the plan.
That doctrine may be more grounded--
Unknown Speaker: Well, I think where you're losing me... I'm sorry to interrupt, but where you're losing me is, if he had not remarried, what is there to give away?
Mr. Deano: --There is nothing to give away, but he would have received more benefits.
Unknown Speaker: So what?
Mr. Deano: So that his estate would have been larger.
Unknown Speaker: Suppose he gambled.
Suppose he decided to go to the river boats and just feed the slot machines.
Mr. Deano: That would not have diminished how much funds he had used during this lifetime that--
Unknown Speaker: It would not have increased the estate.
Mr. Deano: --No, but it would have increased the amount of funds of other people that he would have had use of.
He would have received more money from the plan over his lifetime, which was money partially of other people, and he would have had more money that he would have used of other--
Unknown Speaker: Okay, let's say he did not remarry.
Mr. Deano: --Okay.
Unknown Speaker: And he decided to... for the few years he was single, he was so grieved, he was so full of grief that he gambled a lot.
Now, what is it in the estate that they get more of?
I don't understand... I just don't understand your argument.
Mr. Deano: Well--
Unknown Speaker: That he... there is no annuity.
The only annuity available is for the survivor benefits.
There is no survivor because he never rem rried, so what is it for the children to get?
Mr. Deano: --The rights that the children get is the right to account for their money that was being used--
Unknown Speaker: They didn't have any.
Mr. Deano: --They did have money.
There was money that came in during his lifetime which would have been a greater amount.
Chief Justice Rehnquist: Thank you, Mr. Deano.
Mr. Deano: Thank you.
Chief Justice Rehnquist: The case is submitted.
Unknown Speaker: The honorable court is now adjourned until Tuesday, January 21st at ten o'clock.