For many participants in a 401(k) or pension plan, filling out that beneficiary designation is a one and done activity.
Then, forgotten, but sometimes changing circumstances intervene to invoke the Law of Unintended Consequences. As in a recently decided case in which a U.S. Court of Appeals held that a pre-nuptial agreement does not waive spousal rights under ERISA.
As a non-lawyer, I’ll leave the analysis of MidAmerican Pension and Employee Benefits Plan Administrative Committee v. Cox, No. 12-3563 (8th Cir. July 12, 2013) to the ERISA lawyers.
But as someone who has been a TPA for many years, here is some background on qualified plan beneficiary designations and some practical considerations you might find helpful.
Special Rules for Qualified Plan Beneficiary Designations
Qualified retirement plans are generally subject to ERISA’s "spousal consent rule".
This means that for all defined benefit plans and some defined contribution plans, the death benefit for a married participant must be in the form of a spousal annuity unless spousal consent is obtained in another form, a lump sum if it’s available.
The spousal consent rule also applies to most defined contributions plans, such as 401(k) and profit sharing. The surviving spouse must be the sole and direct beneficiary of the participant unless he or she provides spousal consent subject to the following general rules:
- Must be in writing
- Non-spouse beneficiary designation cannot be changed without spousal consent
- Acknowledge effect of the spousal waiver
- Be witnessed by a plan representative or notary public
And yes, the recent Supreme Court case regarding the Defense of Marriage Act (DOMA) has created much uncertainly in this area, but that’s a topic of another day.
Qualified plan beneficiary designations are not governed by a will. So here is brief checklist of practical matters to consider:
- Beneficiary designations should be reviewed regularly and certainly after a life-changing event, such as a marriage, divorce, birth or death of a loved one.
- Beneficiary designations for retirement plans don’t carry over on rollovers to an IRA, transfer to a new employer’s plan, or when a regular IRA is converted to a Roth IRA.
- Beneficiary designation forms should be sent certified mail, return receipt requested to the Plan Administrator, and, of course, retaining copies.
- The spouse must sign a waiver as discussed above if the participant plans on a beneficiary other than the spouse.
- A contingent beneficiary should be designated.
Finally, here’s the most important part: Plan participants should consult with an experienced attorney about completing designation forms as part of an overall estate plan.