The Colorado Court of Appeals recently decided an issue of first impression regarding the Employee Retirement Income Security Act’s (ERISA) preemptive power over Colorado’s divorce-revocation statute. The decision in Ragan v. Ragan, 2021 COA 75, settled an open question in Colorado regarding whether ERISA preempts “post-distribution” lawsuits under Colorado’s divorce-revocation statute. Specifically, the court held that ERISA preempts lawsuits against a former spouse to recover plan benefits that were distributed to the former spouse as the named beneficiary.

The issues in question here commonly arise after a plan participant dies without removing a former spouse as the named plan beneficiary. Colorado’s divorce-revocation statute provides that any beneficiary designation of a then-spouse will be automatically revoked upon divorce. Colo. Rev. Stat. § 15-11-804(2)(a). The Colorado Court of Appeals previously held, however, that ERISA preempts Colorado's divorce-revocation statute in the “pre-distribution” context because it conflicts with ERISA’s requirement that plan administrators pay benefits to the designated plan beneficiary. In re Estate of MacAnally, 20 P.3d 1197, 1203 (Colo. App. 2000).

Section 15-11-804(8)(b) of Colorado’s divorce-revocation statute—the section at issue in the Ragan case—attempts to sidestep ERISA preemption and states that “[i]f this section or any part of this section is preempted by federal law with respect to a payment . . . a former spouse is obligated to return that payment . . . or benefit, or is personally liable for the amount of the payment or the value of the . . . benefit, to the person who would have been entitled to it were this section or part of this section not preempted.” Colo. Rev. Stat. § 15-11-804(8)(b). The MacAnally case did not decide whether ERISA preempts this section too, i.e., whether an estate could sue a former spouse plan beneficiary after the beneficiary received the ERISA benefits.

Seizing on this unresolved question, the plaintiff in Ragan (Mr. Ragan’s estate) brought a lawsuit against the ex-wife, who had received ERISA life-insurance benefits as the plan beneficiary because Mr. Ragan did not change beneficiaries after the divorce and before he died. In short, the plaintiff-estate argued that attempting to recover ERISA benefits after they are distributed is different from attempting to recover ERISA benefits before they are distributed and, therefore, Section 15-11-804(8)(b) required the benefits to be repaid because it was not preempted by ERISA.

The Court of Appeals disagreed with the plaintiff-estate’s arguments and held that ERISA also preempts the statute’s attempted post-distribution workaround, concluding that “absent an express waiver of rights to the proceeds, ERISA precludes a lawsuit against a former spouse to recover insurance proceeds that were distributed to him or her as the named beneficiary.” In reaching this holding, the court relied on two key rationales.

1.    Courts have historically rejected similar attempts to avoid ERISA preemption, as these types of statutory workarounds “would allow for an end-run around ERISA’s rules and Congress’s policy objective of providing for certain beneficiaries, thereby greatly weakening, if not entirely abrogating, ERISA’s broad preemption provision.” Citing similar decisions, the Ragan court held Section 15-11-804(8)(b) directly contravened the dictates of ERISA.

2.    The U.S. Supreme Court analyzed a similar preemption question of a different federal law in Hillman v. Maretta, 569 U.S. 483 (2013), and endorsed the view that statutory workarounds to preemption are not permissible. Indeed, the Supreme Court invalidated a similar statute where the only function of one of the statute’s sections was “to accomplish what Section A would have achieved, had Section A not been pre-empted.” Ragan, 2021 COA 75 ¶ 39 (citing Hillman (Thomas, J., concurring in the judgment)). The Ragan Court concluded that Section 15-11-804(8)(b) suffered from the same flaws as the federal law in Hillman and was therefore preempted.

The Ragan decision closes a potential loophole to the distribution of ERISA benefits under Colorado’s divorce-revocation statute. In doing so, the court reinforced ERISA’s broad preemptive power and the underlying reasons for that power.