Charles Schwab & Co., Inc. v. Debickero
Filed January 22, 2010
Cite as 07-15261

Surviving Spouse not Entitled under either ERISA or IRC

While under Siemens/GTE’s employment, Wayne Wilson (Wilson) participated in its 401 (k) plan.

When he transferred employment, Wilson closed his Siemens 401 (k), took a lump sum distribution and rolled it over into an IRA with Smith Barney. Eventually, he transferred or rolled over funds into Smith Barney IRA from other accounts and retirement plans.

Upon marrying Katherine Chandler (Chandler), Wilson opened another IRA with Charles Schwab by transferring half of the proceeds from the Smith Barney IRA. Wilson informed Schwab that he was divorced and named his four adult children (Beneficiaries) from a previous marriage.

When Wilson died, the Beneficiaries asserted their rights to the funds in the Schwab IRA. Consequently, Schwab filed an action for interpleader naming Chandler and the Beneficiaries as defendants.

Chandler filed a cross-action complaint against the Beneficiaries. Chandler claimed that as a surviving spouse she was entitled to the funds under either ERISA or the Internal Revenue Code.

The district court favored the Beneficiaries and granted release of the interpleader funds in their favor. Chandler appealed.

The United States Court of Appeals for the Ninth Circuit tried de novo the district court’s decision to grant partial summary judgment.

In affirming the district court’s decision, the appeals court ruled as follows:

• ERISA’s surviving spouse protections did not apply to Wilson’s individual retirement account. When terminated, participation in that pension plan and the transfer of the proceeds into an individual IRA operated the cessation of ERISA’s application. This was so even though some funds originated from ERISA-protected pension plan.
• The Internal Revenue Code did not impose automatic surviving spouse rights on IRAs similar to those protections afforded under ERISA.