What do a newly married employee, a long-term employee, and a change of 401(k) recordkeepers have in common? Beneficiary Designation Forms.

A participant in a 401(k), 403(b), or other account-style retirement plan may name a beneficiary to receive his or her account balance after the participant’s death. A recent case, Moore v. NCR Corp. Plan Admin. Comm. (USDC N.D. Ga., Aug. 30, 2021) is a reminder that retirement plan beneficiary forms need to be reviewed and possibly updated after a marriage.  In addition, these forms may no longer reflect the participant’s wishes over time or may need to be re-executed if the plan sponsor changes the plan’s recordkeeper.

In the Moore case, Mr. Moore had completed a form in 2010 naming his brother as the beneficiary of his 401(k) account.  In 2016, Mr. Moore learned he had esophageal cancer.  Subsequently, Mr. Moore entered into a prenuptial agreement by which his soon-to-be spouse waived all rights to his 401(k) account.  The prenuptial agreement provided that each party would execute such spousal consents or waivers as may be required to effect the desired beneficiary designation of the account owner.  After his marriage, a representative of the recordkeeper advised Mr. Moore and his brother that his brother was set to inherit his account.  Mr. Moore never executed a new beneficiary designation form.  After Mr. Moore’s death, his brother advised the plan administrator of his claim to the account.  However, the plan administrator made payment to Mr. Moore’s widow, since under the terms of the plan and the law, she became the sole beneficiary after the marriage.  The court confirmed that the prenuptial agreement was not a valid waiver of spousal rights under the plan.  The brother’s claim for breach of fiduciary duty was denied since he was not a beneficiary at the time of the event giving rise to the ERISA claim, and therefore, he lacked standing to sue.

The court’s decision was not unexpected.  ERISA has very specific rules about the information that must be included in a spouse’s consent to the designation of a non-spouse beneficiary, and the required information was not included in the prenuptial agreement.  Completing the plan’s specific beneficiary designation form is the best way to ensure that a participant’s desired beneficiary receives the account after death.

Plan participants should be reminded from time to time to check their beneficiary designations forms.  We recently advised a plan administrator on the processing of a beneficiary designation form that had been completed in the 1990s by a participant who never married.  Under the form, the participant had designated his girlfriend (now ex-girlfriend – the relationship ended before 2000) as the beneficiary and his brother as the contingent beneficiary.  The plan administrator found itself in a position of having to honor a beneficiary designation form that might not have reflected the true wishes of the participant.

Finally, when moving a plan from one recordkeeper to another, plan administrators should understand how beneficiary designation forms will be handled, especially if the current recordkeeper has been keeping the beneficiary designation records on behalf of the plan.  If new beneficiary designation forms are required as part of the transition, that requirement should be clearly communicated to participants.

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About the Author:

Deborah Grace is a Member in Dickinson Wright’s Troy, Michigan office, where she advises business owners, human resources professionals and plan fiduciaries on the complex laws that impact the design and administration of their retirement and welfare benefit plans.  She has extensive experience advising clients on the employee benefits aspects of business transactions, and fixing inadvertent errors in plan administration.  She can be reached at 248-433-7217 or dgrace@dickinson-wright.com and you can visit her bio here.