Avoid the Retirement Plan Soap Opera by having Participants update their beneficiary forms

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Yes, I will admit it, I love soap operas. My favorite show of all-time is Dallas and when I was a senior in high school and I was at home around 12:30 pm, I watched in succession, Young and The Restless, Bold and The Beautiful, One Life to Live, and General Hospital. Needless to say, I didn’t have the most active social life in high school.

To go through life, you have enough headaches, especially if you are in charge of your company’s retirement plan.  You don’t want your retirement plan to turn into a soap opera and one way to avoid that headache is to make sure that your employees update or review their beneficiary forms every time you have a plan enrollment/ investment education meeting with plan participants. My story will tell you why.

Years ago, I worked for a third party administrator and I had to review a soap opera that was because of an enrollment form.

A law firm partner of a client we were the TPA for, named his children as his beneficiaries. His spouse had predeceased him.

He got married to the new wife and as part of the pre-nuptial agreement; she waived her benefit to the 401(k) plan in question. He died and his two children felt that they were entitled to the benefit. They were right, you think? You’d be wrong.

While a spouse has every right to waive her benefit, a pre-nup by itself is not an actual waiver according to the rules governing retirement plans. So in addition, the spouse had a pre-nup that she signed and then needed to sign a separate waiver form to waive the benefit to make that pre-nup effective. She didn’t, her good fortune.  The children were horrified and their counsel asked about that one-year provision in the Code that they thought was a smoking gun. Again, retirement plans can require a year of marriage for spousal waiver, they don’t need to and most plans I have come across don’t have that one-year provision.

End of the soap opera story, in my case, this second wife actually waived her right to benefit and the children got the benefit because this second wife wanted to keep her end of the bargain in the pre-nup, valid waiver or not.

It can’t be stressed enough that plan participants need to review their beneficiaries consistently and if the participants gets re-married, widowed, or had new children, they need to sit down and determine what they do with their retirement benefits since these are non-probate assets governed by ERISA and the Internal Revenue Code.

Topics:  Beneficiaries, Retirement Plan, TPAs

Published In: Finance & Banking Updates, Labor & Employment Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ary Rosenbaum, The Rosenbaum Law Firm P.C. | Attorney Advertising

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