The beneficiary designation form may be one of the most important
documents for the administration of an employer-sponsored retirement plan—and
one often inadequately discussed with participants. Many participants have the
bulk of their “net worth” tied up in employer 401(k) plans and other
employer-sponsored benefits, such as life insurance and defined benefit (DB)
plans. Because they dictate the dispersion of a participant’s most valuable
financial asset, these forms need to accurately reflect the wishes of the
participant when it comes to naming primary and contingent beneficiaries. With
blended families and complicated extended-family relationships increasingly the
“new normal,” it is wise to educate participants about how to properly fill out
these critical estate-planning vehicles.
By neglecting to cover this with participants, you potentially do
them—as well as their beneficiaries—a grave disservice, which could result in
plan assets being distributed to people other than those intended. Beyond this
are the additional headaches you, as a plan sponsor, will encounter as you deal
with the fallout from a faulty beneficiary designation.
One way to bring this to participants’ attention is to clearly
mark the forms. For example, some forms only offer a line for primary
beneficiaries. Unless a participant asks, he will not know that he needs to put
“100%” next to the primary beneficiary and then insert “contingent” next to the
second beneficiary’s name.
Also consider the following questions:
• Do you have beneficiary forms on file for all participants?
• When were beneficiary forms last updated?
• Do your beneficiary forms pass muster? Beneficiary forms may be
outdated and not reflect current laws.
• Can your plan “customize” beneficiary designations?
• Are you communicating to participants the ramifications of
failing to fill these forms out correctly?
A good rule of thumb is to issue a form that reflects the plan’s
requirements, policies and procedures. A simple reminder letter to participants
could have surprising results and save a lot of heartache for plan
beneficiaries in the future.In this month’s Know
How, we show participants how to ensure that their assets go to their chosen