The Importance of Maintaining Beneficiary Forms

There have been a number of high profile court cases in recent years concerning the payment of death benefits from qualified 401(k) plans. Often the circumstances leading to these cases could have been avoided if Plan Sponsors were a bit more diligent in procuring and maintaining current versions of Participant Beneficiary Designation Forms. This is an area where sponsors are often too lax considering they may be held liable if assets are improperly distributed. 

ERISA law requires spousal consent in order to designate anyone other than a spouse as a beneficiary, so particular care should be taken in obtaining new forms when changes in marital status occur. Since a spouse must consent to the designation of a non-spousal beneficiary, a marriage would essentially void any previous designations. Courts have affirmed that under a qualified plan, an agreement made prior to marriage is not considered spousal consent because there is not a spousal relationship at the time of the consent. Only after the marriage, can proper consent be given to designate a non-spousal beneficiary. 

It is also worth noting that, depending on the provisions of your document, there are instances in which a former spouse would be similarly entitled to a deceased Participant's benefit if a new designation was not made following a divorce. Some documents may nullify this spousal default if a divorce occurs, but in either event, this is an instance where a new designation is highly advisable. 

Properly executed Beneficiary Forms are required in the event of a participant's death and it's an Employer's responsibility to maintain them. The law contains some last-resort contingencies for instances where forms are unavailable, but a simple and sure way to avoid that liability would is to maintain current forms. If you are uncertain as to whether your Employee Beneficiary Forms are on file and current, periodic reviews would certainly be recommended.

If you have questions regarding these designations or the application of spousal consent, contact Mike Riley.