Court Opinion

ID: 9682106
Source: CourtListenerOpinion
Date Created: 2023-08-24 08:05:28.70235+00
Date Added: 2024-06-11T18:17:37.498848
License: Public Domain

SPEARS, Justice,
dissenting and concurring on Motion for Rehearing.
The dissenting and concurring opinion delivered May 4,1988 is withdrawn and the following is substituted:
Billy Allard was employed by General Dynamics Corporation for thirty-one years. During his lengthy employment with the company, he made regular contributions to a qualified retirement plan and earned the right to receive monthly retirement benefits of $1,008 for the remainder of his life. Mr. Allard began receiving his retirement benefits in June, 1982, but upon Mrs. Al-lard’s death in 1983, her estate claimed one-half of Mr. Allard’s retirement benefits. The majority holds that the beneficiaries of Mrs. Allard’s estate — two able-bodied young adults for whom the retirement benefits were never intended — are entitled to one-half of Mr. Allard’s retirement pay. I dissent from this holding for two reasons. First, the claim of the will beneficiaries to Mr. Allard’s retirement benefits is precluded by federal law. Second, even in the absence of controlling federal law, the holding of the majority contravenes the very purpose of retirement plans.
In his motion for rehearing, Mr. Allard asserts that state law relating to employee benefit plans is federally pre-empted by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. (1985). Under the Supremacy Clause of the United States Constitution, federal law that regulates a specific field of activity overrides state law in that area. U.S. Const. art. VI, cl. 2; Free v. Bland, 369 U.S. 663, 666, 82 S.Ct. 1089, 1092, 8 L.Ed.2d 180 (1962). Once Congress moves into an area of the law, the power of a state to regulate that subject matter is effectively negated. Free v. Bland, 369 U.S. at 666, 670, 82 S.Ct. at 1094. Judicial decisions that apply state law to an area that has been federally pre-empted are subject to nullification on the basis that federal law supersedes state law in that area. Kalb v. Feuerstein, 308 U.S. 433, 439, 60 S.Ct. 343, 346, 84 L.Ed. 370 (1940); see also Ex parte Hovermale, 636 S.W.2d 828, 834 (Tex.App.—San Antonio 1982, no writ). Consequently, a claim of federal pre-emption is entitled to consideration when it is raised. See International Longshoreman’s Ass’n v. Davis, 476 U.S. 380, 106 S.Ct. 1904, 1913, 90 L.Ed.2d 389 (1986). A claim of federal pre-emption under ERISA warrants particular consideration because the pre-emption provisions of that statute are designed to establish pension plan regulation as an exclusive federal concern. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 1552, 95 L.Ed.2d 39 (1987). Mr. Allard’s *117federal pre-emption claim is properly before this court.
In light of the provisions of ERISA and the case law construing that federal statute, it is readily apparent that ERISA preempts state law in this case and prohibits the divestiture of any portion of the retirement benefits to which Mr. Allard is entitled under the General Dynamics pension plan. In 1974, ERISA was enacted to assure employees that they would not be deprived of reasonably anticipated pension benefits. Amato v. Western Union Int’l, Inc., 773 F.2d 1402, 1409 (2nd Cir.1985), cert. denied, 474 U.S. 1113, 106 S.Ct. 1167, 89 L.Ed.2d 288 (1986). ERISA is remedial legislation and is to be liberally construed in favor of protecting participants in employee benefit plans. Smith v. CMTAIAM Pension Trust, 746 F.2d 587, 589 (9th Cir.1984).
As a threshold matter, the retirement plan established by General Dynamics is clearly subject to the provisions of ERISA. ERISA comprehensively regulates “employee pension benefit plans.” 29 U.S.C. § 1002(2)(A) (Supp.1988); Sams v. N.L. Indus., Inc., 735 S.W.2d 486, 488 (Tex.App.—Houston [1st Dist.] 1987, no writ). Any plan that provides retirement income is an “employee pension benefit plan” and will be subject to all of ERISA’s requirements unless specifically excepted. 29 U.S.C. § 1002(2)(A)(i) (Supp.1988). Further, ERISA applies to pension plans established or maintained by “any employer engaged in commerce or in any industry or activity affecting commerce.” Id. at § 1003(a)(1). The act itself broadly defines “industry or activity affecting commerce” as “any activity, business, or industry in commerce or in which a labor dispute would hinder or obstruct commerce or the free flow of commerce.” Id. at § 1002(12). The statutory definition of “industry or activity affecting commerce” is intended to be expansive rather than limiting, reflecting Congress’ desire to regulate within the full sweep of its constitutional authority. Winterrowd v. David Freedman & Co., Inc., 724 F.2d 823, 825 (9th Cir.1984). Because of the broad scope of its coverage, ERISA clearly applies to General Dynamics as an “industry or activity affecting commerce” and to the General Dynamics’ retirement plan as an “employee pension benefit plan.”
ERISA specifically provides that the benefits under a pension plan may not be assigned or alienated. 29 U.S.C. § 1056(d)(1) (1985). The act recognizes only one exception to this prohibition — benefits may be assigned or alienated when a “qualified domestic relations order” so provides. Id. at § 1056(d)(3)(A). The act defines a “qualified domestic relations order” as an order that “relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant” and which “is made pursuant to state domestic relations law.” Id. at § 1056(d)(3)(B)(ii). The order divesting Mr. Allard of one-half of his retirement benefits in favor of the devisees of Mrs. Allard is not a qualified domestic relations order. It does not accord marital property rights to Mrs. Allard nor provide child support to any dependent of Mr. Allard. The anti-alienation provision of ERISA thus applies to Mr. Allard’s retirement benefits. Id. at § 1056(d)(1).
It is well established that claims relating to ERISA benefits based on state statutes and common law have been pre-empted and prohibited by ERISA. 29 U.S.C. § 1144(a) (1985); Pilot Life Ins. Co., 107 S.Ct. at 1552-53, 1558; Holland v. Burlington Indus., Inc., 772 F.2d 1140, 1146-48 (4th Cir.1985); Winterrowd, 724 F.2d at 826. ERISA broadly supersedes any state law having a connection with or reference to any employee benefit plan covered by the act. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 97, 103 S.Ct. 2890, 2900, 77 L.Ed.2d 490 (1983). A state law that does not expressly concern employee benefit plans will nevertheless be pre-empted if the law applies to the benefits of such plans. Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enter., Inc., 793 F.2d 1456, 1465 (5th Cir.1986), cert. denied, 479 U.S. 1089, 107 S.Ct. 1298, 94 L.Ed.2d 154 (1987).
This court has already recognized that federal law may pre-empt Texas community property law and probate law when re*118tirement benefits are the subject of the claim. Valdez v. Ramirez, 574 S.W.2d 748, 751 (Tex.1978) (Federal Civil Service Retirement Act held to pre-empt Texas probate and community property law regarding creation of joint survivorship annuity). Specifically, ERISA has been held to pre-empt state law when ERISA benefits are the subject of the claim. See, e.g., Sams v. N.L. Indus., Inc., 735 S.W.2d 486, 489 (Tex.App.—Houston [1st Dist.] 1987, no writ) (employee’s common law causes of action for breach of contract, wrongful discharge, and willful refusal to pay sick leave preempted by ERISA); Giles v. TI Employees Pension Plan, 715 S.W.2d 58, 59 (Tex.App.—Dallas 1986, writ ref’d n.r.e.) (ERISA pre-empted employee’s claim under the Deceptive Trade Practices Act that the amount of retirement pay due upon employee’s retirement had been misrepresented).
The principles of Texas community property law and probate law, as applied by the majority in this case, clearly relate to ERISA benefits. The state law applied to Mr. Allard’s retirement benefits has a direct impact on the relationship between two of the principal ERISA entities — the plan and the plan’s beneficiary. See Firestone Tire & Rubber Co. v. Neusser, 810 F.2d 550, 556 (6th Cir.1987). As a result, ERISA pre-empts state law as it relates to the allocation of Mr. Allard’s retirement benefits. Section 1061 of ERISA prohibits the alienation of Mr. Allard’s retirement benefits, and, thus, the devisees under Mrs. Allard’s will have no claim to any portion of Mr. Allard’s retirement benefits.
While it is clear that federal law preempts state law as to Mr. Allard’s retirement benefits, there is a second, equally important reason that the majority’s holding should not govern this cause. The majority sets forth the rule that under Texas law a non-employee spouse may bequeath to third parties his or her community interest in the employee spouse’s vested retirement plan. The majority ignores the patent inequity of this rule. Permitting a non-employee spouse to give away one-half of the employee’s retirement benefits contravenes the very purpose of retirement plans and violates the legitimate expectations of the elderly who rely on retirement benefits to sustain them in their declining years. The court of appeals and the concurring opinion in this court have acknowledged the unfairness inherent in divesting an employee of hard-earned retirement benefits and diverting those benefits to healthy young adults capable of self support. Simply acknowledging the unfairness of this situation, however, does not restore financial security and support to the elderly who have been stripped of retirement benefits.
This court has in the past directly confronted inequity and rejected outdated doctrines that inflict harsh and unfair results on those least able to bear the loss. See, e.g., Sanchez v. Schindler, 651 S.W.2d 249, 252 (Tex.1983) (pecuniary loss rule abolished as limitation on recovery under Texas Wrongful Death Act); Farley v. M M Cattle Co., 529 S.W.2d 751, 758 (Tex.1975) (doctrine of assumption of risk abolished). When faced with obvious inequity, this court has refused to declare itself helpless because of precedent. An equally forceful judicial response is demanded when retired employees are deprived of hard-earned and needed retirement benefits.
Retirement benefits represent additional compensation to an employee who has contributed years of faithful and continuous service to his employer. Lee v. Lee, 112 Tex. 392, 247 S.W. 828, 833 (1923). Retirement payments, whether administered through a governmental or private pension plan, replace the employee’s salary and frequently represent the primary source of financial support and security for the retired employee and his or her spouse. Valdez v. Ramirez, 574 S.W.2d 748, 750 (Tex.1978). These benefits play a critical role in the financial survival of the elderly after the wage earner no longer works.
Like the personal earnings of spouses, retirement benefits earned during a marriage are community property. Taggart v. Taggart, 552 S.W.2d 422, 423 (Tex.1977); Cearley v. Cearley, 544 S.W.2d 661, 662, 666 (Tex.1976). Unlike other forms of community property, however, retirement bene*119fits are meant to be shared only by the spouses. In re Estate of Allen, 108 Cal.App.3d 614, 619, 166 Cal.Rptr. 653, 656 (Ct.App.1980). Retirement benefits therefore constitute a unique component of the community estate because they are designed solely to sustain the retired employee and his or her spouse for the remainder of their lives or for a designated period of time. Id. Retirement benefits are not designed to enrich estates or enhance the fortunes of young adults.
At divorce, each spouse’s needs for ongoing financial support continue, and thus, retirement benefits are properly divided between the spouses. Taggart, 552 S.W.2d at 423. By contrast, when the spouse of a retired employee dies, his or her need for financial support ends. The retired employee, however, continues to depend on retirement benefits for economic survival. Waite v. Waite, 6 Cal.3d 461, 474, 492 P.2d 13, 21, 99 Cal.Rptr. 325, 333 (1972). It is contrary to the very purpose of retirement plans to appropriate money from a surviving employee spouse and award it to young, robust, able-bodied adults who are capable of supporting themselves. Valdez, 574 S.W.2d at 750. The majority, by mechanically applying community property principles and probate rules, fails to recognize both the purpose and the unique nature of retirement benefits.
The fact that state law may be construed to permit a non-employee spouse to give away one-half of the employee spouse’s retirement pay demonstrates the critical need for a rule to ensure that retirement benefits reach those who earned them and need them. If state law were held to be controlling in this area, the interests of the elderly would require either the adoption of a terminable interest rule to govern the non-employee spouse’s community interest in retirement benefits upon that spouse’s death, or alternatively, the characterization of retirement benefits as nonprobate community property assets. Waite, 6 Cal.3d at 470, 474, 492 P.2d at 19-22; 99 Cal.Rptr. at 330-334; see also Langbein, The Nonprobate Revolution and the Future of the Law of Succession, 97 Harv.L.Rev. 1108, 1111 (1984).
Under a terminable interest rule, a non-employee spouse’s interest in retirement benefits would not extend to benefits payable after his or her death. The community interest of the decedent would automatically terminate at his or her own death, and the post-death retirement benefits would become the separate property of the spouse whose employment brought the benefits into existence. Under such a rule, retirement benefits would support only the employee spouse and could not be diverted into the hands of young adults.
The majority has declined to adopt a terminable interest rule, focusing on the problems experienced by California courts in attempting to implement that doctrine. It is important to note, however, that the California rule, unlike the rule proposed here, contained two prongs. First, California’s rule provided that the community interest in retirement benefits expired with the death of the employee so that his or her surviving spouse was not assured of any share of continuing benefits. Benson v. City of Los Angeles, 60 Cal.2d 355, 384 P.2d 649, 33 Cal.Rptr. 257 (1963) (en banc). Second, the rule held that the community interest in retirement benefits ended upon the death of the non-employee spouse. Waite v. Waite, 6 Cal.3d 461, 492 P.2d 13, 99 Cal.Rptr. 325 (1972). California’s rule, as the majority notes, was subject to criticism, but the assault centered on the Benson prong of the rule that divested a surviving spouse of any contingent benefits upon the death of the employee spouse. See, e.g., Reppy, Community and Separate Interests in Pensions and Social Security Benefits After Marriage of Brown and ERISA, 25 U.C.L.A.L.Rev. 417 (1978); Thiede, The Community Property Interest of the Non-Employee Spouse in Private Retirement Benefits, 9 U.S.F.L.Rev. 635 (1975). As stated by one California appellate court, that aspect of California’s terminable interest rule was patently unfair to the non-employee spouse, failed to recognize the purpose of the benefits involved, and improperly relied on the implied repeal of the California statute that, unlike Texas law, prohibits the unilateral gift of commu*120nity funds. Chirmside v. Board of Administration, 143 Cal.App.3d 205, 209, 191 Cal.Rptr. 605, 607 (Ct.App.1983). The California legislature abolished the terminable interest rule in 1986 but, interestingly, did so only with regard to divorce cases. Cal. Civ.Code Ann. § 4800.8 (West Supp.1988). Consequently, even if the California experience has relevance to this court’s application of Texas community property principles, it in no way negates the viability of a rule that terminates the non-employee spouse’s community interest in retirement benefits upon his or her own death.
The majority also declines to characterize retirement benefits as a nonprobate asset. This court, however, has already recognized the nonprobate nature of property passing at death pursuant to the terms of a contributory retirement plan. Valdez, 574 S.W.2d at 750. Further, the Texas legislature has evinced a favorable attitude toward nontestamentary transfers of property. The Texas Probate Code expressly recognizes various types of nonprobate assets, including provisions in retirement accounts. Tex.Prob.Code.Ann. § 450 (Vernon Supp. 1988).
There is no reason to permit nontesta-mentary transfers of property pursuant to the terms of some contributory retirement plans but not pursuant to others. In this case, Mr. Allard earned the right to retirement benefits through his long employment with General Dynamics. Pursuant to section 5.22(a) of the Texas Family Code, he had the sole right to manage and control the retirement plan as long as his actions did not defraud his wife’s interest. Tex. Fam.Code Ann. § 5.22(a) (Vernon 1975); Krueger v. Williams, 163 Tex. 545, 359 S.W.2d 48, 51 (1962). There are neither pleadings nor evidence to suggest fraud by Mr. Allard. He is thus held to have acted within his authority when he contracted with his employer for the right to receive retirement benefits for the remainder of his life. That contract, not Mrs. Allard’s will, is the instrument that properly governs the disposition of Mr. Allard’s retirement benefits.
The Texas Probate Code contemplates the designation of a beneficiary by the person who is an actual party to the contract, note, or retirement account in question. Tex.Prob.Code Ann. § 450 (Vernon Supp.1988). Section 450 thus addresses one form of nontestamentary transfer of property; it does not purport to exclude all other forms of nontestamentary transfers. It is incorrect, therefore, to refuse to characterize Mr. Allard’s retirement plan as a nonprobate asset on the basis of section 450. Mrs. Allard was not a party to the retirement plan contract between Mr. Al-lard and General Dynamics. It makes no sense to deprive Mr. Allard of one-half of his retirement benefits because Mrs. Allard did not make a beneficiary designation in an instrument to which she was not a party.
Mr. Allard is entitled to enjoy full retirement benefits for the remainder of his life. Federal law overrides state law in this matter and prohibits the allocation of any portion of Mr. Allard’s retirement benefits to Mrs. Allard’s devisees. Even if Mr. Allard did not raise his federal pre-emption claim in a timely manner, the very purpose of retirement plans mandates that retirement benefits go to the elderly who earned them and need them. I would therefore reverse the judgment of the court of appeals on this point. I otherwise concur with the majority as to the disposition of the funds on deposit in the joint savings account.
WALLACE and KILGARLIN, JJ., join in this dissenting and concurring opinion.