Company Alternatives for Retirement Plan Participant with Insufficient Beneficiary Designation Forms

One of the key issues with respect to retirement plan distributions is proper handling of beneficiary designations. Issues that arise for retirement plan sponsors related to beneficiary designations include incomplete beneficiary designation forms, benefits being split among beneficiaries in unclear or mathematically impossible ways, or even pre-deceased beneficiaries. While your human resources department can take steps to eliminate these problems up front, and should check behind employees as they submit their forms, there are still situations that arise when the forms attached to a plan are simply insufficient.

Initial Plan and Form Review

Whether you’re setting up a new retirement plan or simply enrolling a new employee in an existing plan, it’s important to make sure everyone is aware of the default beneficiary provision. All retirement plans should have a provision that provides a fallback in the event that no viable beneficiary has been designated by the plan participant. It should simply clarify what happens in that event and in what order of priority. Pursuant to qualified plan retirement law, the spouse is typically the default beneficiary unless he or she has explicitly waived her beneficiary rights. If the participant is unmarried, the beneficiary rules are subject to intestate succession according to state laws.

Make sure your HR team understands both who the plan designates as the fallback beneficiary and what that means for their specific location. The plan may also contain additional clarifying language on what should happen in complex situations such as a divorce or handling an incomplete or confusing form. Further, there should be a clear process in place for what HR should check when confronted with a legal representative of the plan participant wanting to modify or update the beneficiary designation form. In these instances, taking the time to check and ensure someone is properly empowered can save you problems down the road.

When a new employee fills out the various forms as they start their employment or join the businesses retirement plans, HR should take a few moments to check the forms to ensure they are correct and explain the process for changing beneficiaries in the future. While this certainly won’t catch all problems, it will help HR handle many complications that may come up initially and make sure everyone has a clear understand of what may happen going forward.

How to Handle Incomplete or Problematic Forms

Even when you take the time to ensure forms are properly filled out initially, as life changes, the forms may become insufficient for their purpose. It is therefore recommended that retirement plan sponsors perform regular beneficiary audits to ensure that beneficiary designation forms are clear and up-to-date. If a beneficiary determination is impossible, a declaratory judgement designating the beneficiary may be required. Alternatively, retirement plan sponsors may look to other employee forms that designate a beneficiary, such as a life insurance, to inform who is, in fact, the intended retirement plan beneficiary for a participant.

Determining the next step to take can be confusing, even to experienced plan fiduciaries, especially when there is no clear answer. Having the help of an experienced team like the benefits attorneys at Hall Benefits Law on your side can help. Our attorneys are familiar both with benefit and retirement plans and the workings of estate law and can help you determine whether you can make that judgement call on your own or whether it would be wise to work through the court system. We work with clients around the country to set up and monitor benefits plans, make changes as necessary based on business realities and changing laws, and help handle problems when they occur. Reach out today to learn more by calling 678-439-6236 or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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