Equitable Substantial Compliance Doctrine Governs ERISA Beneficiary Designations and Standing in Interpleader Actions

Introduction

Morgan v. Barrera, decided by the United States Court of Appeals for the Fifth Circuit on April 21, 2025, addresses who may validly receive the proceeds of a life insurance benefit under an ERISA-governed plan when a participant’s formal paperwork is deficient. The dispute arose between Christine and Denise Morgan (the appellees) and Janie Barrera’s sisters, Elvia Barrera and Linda Arriazola (the appellants). Barrera, employed by Walgreens, failed to file a new beneficiary designation form after being notified of missing records; instead, she orally and informally directed her benefits to the Morgans shortly before her death. When Prudential (the plan administrator) froze the account and defaulted to statutory heirs, both sides filed for summary judgment. The district court ruled for the Morgans; the sisters appealed. The Fifth Circuit affirmed, establishing two key principles: (1) claimants in an ERISA interpleader action have standing without exhausting administrative remedies, and (2) equity will enforce a beneficiary change under the “substantial compliance” doctrine when intent and meaningful action are demonstrated.

Summary of the Judgment

The Fifth Circuit, in an unpublished opinion, affirmed the district court’s grant of summary judgment to the Morgans. The court held that:

1. The Morgans, as potential beneficiaries in an interpleader context, had standing under ERISA regardless of administrative exhaustion, because Prudential’s interpleader made exhaustion futile.
2. Under federal common law, Barrera’s informal but documented expressions of intent—her conversations with Walgreens, her powers of attorney granted to Christine Morgan, and Prudential’s own post-death correspondence—satisfied the “substantial compliance” standard to effectuate a beneficiary change.
3. Consequently, the life insurance proceeds must be paid to the Morgans rather than default heirs.

Analysis

Precedents Cited

• Bourgeois v. Pension Plan for Employees of Santa Fe Int’l Corp., 215 F.3d 475 (5th Cir. 2000): Established the general rule requiring exhaustion of plan remedies before suing for ERISA benefits.
• Hall v. National Gypsum Co., 105 F.3d 225 (5th Cir. 1997): Recognized a “futility” exception when internal remedies cannot resolve a core eligibility dispute in an interpleader.
• Hartford Life & Accident Ins. Co. v. Varnado, No. 16-15-SDD-EWD, 2016 WL 9525710 (M.D. La. Nov. 23, 2016): Held that an insurer’s interpleader renders exhaustion futile because the insurer cannot advance any beneficiary claim internally.
• Metropolitan Life Ins. Co. v. Marsh, 119 F.3d 415 (6th Cir. 1997): Confirmed that claimants in a properly pleaded interpleader may litigate regardless of ERISA standing norms.
• Phoenix Mutual Life Ins. Co. v. Adams, 30 F.3d 554 (4th Cir. 1994): Articulated the two-part “substantial compliance” test for beneficiary changes—intent plus practical equivalence of action to policy requirements.
• Western Coast Life Ins. Co. v. Fales, No. SA-14-548, 2015 WL 225065 (W.D. Tex. Jan. 14, 2015) and American Home Life Ins. Co. v. Stockslager, No. 3:14-CV-2860-BF, 2016 WL 1071104 (N.D. Tex. Mar. 17, 2016): Applied substantial compliance when the insurer accepted and acted on an informal beneficiary change.

Legal Reasoning

The court’s analysis proceeded in two prongs:

1. Standing and Administrative Exhaustion: ERISA § 502(a)(1)(B) allows a “beneficiary” to sue for benefits. Normally, section 502 requires exhaustion of plan appeals (Bourgeois), but the insurer’s interpleader makes internal review meaningless (Hall, Varnado). Thus, the Morgans—joined as claimants under Federal Rule of Civil Procedure 22—had standing, since they were designated or potential beneficiaries under 29 U.S.C. § 1002(8), and touting exhaustion would defeat the statutorily articulated purposes of finality and uniformity.

2. Substantial Compliance with Change-of-Beneficiary Requirements: ERISA is silent on formality, so federal common law supplies a doctrine that a policyholder’s intent plus practical steps equivalent to the plan’s formal procedure suffice to modify a beneficiary designation (Adams). Barrera’s actions—granting Christine Morgan power of attorney, signing a witnessed directive, explicitly instructing a Walgreens representative three times, and recognition by Prudential’s mailings—satisfied both elements. Prudential’s own beneficiary support letter further confirmed acceptance, waiving any technical defects.

Impact

This decision clarifies two vital points in ERISA litigation:

• Interpleader Standing: Insurers in ERISA interpleader suits cannot escape litigation by invoking exhaustion; claimants may proceed directly in federal court.
• Beneficiary Change Doctrine: Courts will enforce non-technical beneficiary changes where intent is clear and the insurer has acted, discouraging hyper-formal objections when parties have manifestly agreed.

Future ERISA disputes will likely see expanded use of equitable substantial compliance to uphold informal beneficiary designations and streamlined standing for interpleader claimants.

Complex Concepts Simplified

• ERISA Exhaustion: Normally, you must ask your benefits plan to reconsider before suing—but if the insurer sues everyone (an interpleader), there is no internal process to exhaust.
• Interpleader: A legal device where a neutral stakeholder (the insurer) brings all claimants into court to resolve who gets the money, avoiding multiple liabilities.
• Substantial Compliance: Even without perfect paperwork, if you clearly intend to change the beneficiary and take actions very close to what the contract requires, equity enforces the change.

Conclusion

Morgan v. Barrera reaffirms that ERISA beneficiaries in an interpleader context enjoy direct access to court without futile administrative hurdles, and that federal courts will apply the equitable substantial compliance doctrine to honor a decedent’s true intent when formal plan requirements have not been met perfectly. This ruling strengthens plan participants’ ability to direct benefits and claimants’ ability to enforce those directions, promoting fairness and preventing technicalities from undermining genuine testamentary wishes.