District, provider sued over pension plan after woman's death

A teacher worked for her school district from 1993 through 1997. While employed, she became a participant in the district’s deferred compensation pension plan. Under the terms of the plan, the teacher could elect to defer a portion of her pay for federal income tax purposes. The portion of the teacher’s compensation being deferred was invested by the district into an annuity contract to set aside funds to be payable to her at a later date. The district contracted with a third-party private firm to administer the fund.

The teacher left the district at the end of the 1996-97 school year. She never transferred or withdrew the money, so it remained invested in the plan until her death in 2015. After she died, the executor of her estate made inquiries to the district regarding the plan. The district never responded to her request, so the executor sued the district, claiming that the benefits held in the account belonged to the teacher’s estate. 

After the executor filed the lawsuit, the third-party plan administrator disclosed documents related to the plan. At that time, the executor learned for the first time that the teacher had completed a beneficiary designation, which designated her niece and nephew as beneficiaries. A copy of that document had been provided to the district, but the district had never released it to the executor. The death benefits under the plan were paid to the niece and nephew.

Despite the revelation about the beneficiary designation, the executor continued the lawsuit against the district and the plan administrator, alleging breach of fiduciary duty, breach of contract, fraudulent representations and concealment, fraud, exemplary or punitive damages for fraud, negligence, negligence, and actual and punitive damages. The school district and plan administrator requested that the lawsuit be dismissed, arguing that they were immune from suit, and the district court dismissed the case. The executor appealed to the court of appeals.

The court of appeals considered two issues: 

1. Were the school district and plan administrator immune from suit?
2. What impact, if any, did the beneficiary designation have on the suit?

With respect to the immunity issue, the court of appeals noted that, generally a school district is immune from suit, as is a private contractor when it is acting on behalf of the school district. However, there are exceptions. 

In this case, the teacher and the district had entered into a written contract regarding the plan. Therefore, the court of appeals held that the district had waived its immunity and that the teacher (or executor on her behalf) could file a suit for breach of that contract and the district was not immune. 

Since the district was not immune, the plan administrator could also be sued. However, in this case the revelation about the beneficiary designation meant that the plan benefits had been paid. Therefore, it no longer mattered if the executor believed that the district and plan administrator had breached the contract, since the executor was not the beneficiary under the plan. 

Therefore, the court of appeals upheld the decision to dismiss the case.