What is the practical effect of ERISA preemption?

ERISA preemption can have an important practical effect because it can render ineffective state laws that would otherwise apply. ERISA preemption can, for example, limit the remedies that plan participants have and result in distributions of benefits that otherwise would not occur. This may be advantageous to the ERISA defendants because the state law claim may permit punitive damages, which are not permitted by ERISA, and because the state law claim may permit a jury trial, which is generally not available under ERISA. Preemption may also be advantageous to defendants because the plaintiff may be required to exhaust his or her administrative remedies at the plan level before commencing a lawsuit. Finally, ERISA preemption benefits plan sponsors because of the deferential standard of review that applies to decisions made by plan officials.

How does ERISA preemption affect the disbtribution of benefits under a plan?

ERISA preemption can dramatically affect the distribution of plan assets by making invalid state laws that would otherwise apply. This can have dramatic effect in the event of a divorce.

Example: An engineer divorces her first husband and later remarries. She does not change her original beneficiary designation, which provides that the first husband gets all of her pension plan assets if she predeceases him. The engineer dies while her first husband is still alive with a vested account balance of $200,000 in her retirement plan. If ERISA preemption applies the $200,000 goes to her first husband, even if state law provides that the $200,000 should go to the second husband. [See Brown v Connecticut General Life Insurance Company, 934 F 2d 1193 (11th Cir 1991) (divorce decree which required that ex-spouse be designated beneficiary not followed by individual when he changed jobs and designated his new wife; state decree held preempted by ERISA, since election pertained to employee benefit plan)].