Determining a Retirement Beneficiary? It Isn’t Always Simple

Paul McEwan | June 20th, 2011

A single dad wanted to designate his two children as beneficiaries of his retirement benefits. He mailed his beneficiary designation form to his employer with a cover letter explaining his wishes. When he later died, the benefits administrator noticed the designation form wasn’t signed. Should the plan assets pass to the estate or the children?

Although plan sponsors, vendors and benefits professionals all regularly recommend that participants in qualified retirement plans periodically review and update their beneficiary information,  participants with incomplete designations or no designated beneficiary can cause a number of issues upon their death.

When a beneficiary is not clearly documented or is disputed by family members, the resolution isn’t so clear. ERISA preempts state law if the law relates to an employee benefit plan. However, circuit courts have rendered diverse opinions regarding ERISA’s preemption of state law, ruling in favor of state law in some cases and in favor of ERISA in others.

Plan sponsors can help plan participants avoid the inevitable conflict among beneficiaries by reminding them to keep beneficiary designation forms up-to-date and properly executed. This includes:

  • an annual review of beneficiary information.  Annual enrollment in welfare benefit plans is a good time to have all employees review their beneficiary designation forms.
  • execution of a properly-signed beneficiary designation form should changes be deemed necessary
  • denoting clearly if two beneficiaries are named as primary beneficiaries, upon the death of one primary beneficiary, whether assets to be transferred to heirs or paid only to the surviving beneficiary
  • for plans that outsource plan recordkeeping, it is a best practice to keep beneficiary designation forms with the employee personnel file.

Your accounting professional can help you establish best practices when it comes to keeping beneficiary forms updated.   Another primary fiduciary issue you may seek assistance with is periodically comparing services and plan fees to a benchmark of similarly-sized plans.  In most cases, the process results in a significant savings to the plan participants.  It is important that the benchmark process be rigorous and coordinated by an objective and trusted advisor, not by an investment sales person trying to sell an investment product or service.

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2 Responses to “Determining a Retirement Beneficiary? It Isn’t Always Simple”

  1. IRA RMD says:

    Employer A – job ended in 2005.
    Employer B – job ended in 2009.

    Now, am with Employer C.

    My question is: Can I rollover my 401K from Employer B to Employer A or does it have to be ALWAYS from your previous employer(Employer B) into your current employer’s 401K(Employer C)?

    I really like the low fees and fund selection in Employer A’s 401k plan.

  2. That’s a good question.

    The answer is – it depends on how Plan A’s plan document reads. However, most plan sponsors only allow current employees to roll their money into the plan. It’s most likely that you would only be eligible to roll over your previous 401(k) plan into your current employer’s plan, or Employer C.

    If the fees and fund selection in your current plan aren’t appealing, you may be able to make suggestions for improvement to Employer C’s plan. An outside consultant, such as an accounting professional specializing in benefit plan administration, can also help the plan sponsor determine ways to make the 401(k) plan more attractive to employees through lower fees and broader investment opportunities.

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