(b)lines Ask the Experts – Beneficiary Changes at Age 35

February 19, 2013 (PLANSPONSOR (b)lines) – “I am a new administrator for our ERISA 403(b) plan, and when reading the plan document I came across some gobbledygook about certain beneficiary designations becoming invalid at age 35.

Could this possibly be true? And how do we go about ‘revalidating’ the beneficiary designations?”  

Michael A. Webb, Vice President, Retirement Plan Services, Cammack LaRhette Consulting, answers:  

Though the Experts probably would not ascribe the label of “gobbledygook” to this provision, we concur that it is indeed a rather obscure IRS provision that can be found in Treas. Reg. 1.401(a)(20). It should be noted that the language in this regulation to which you are referring, only applies to plans subject to the survivor annuity requirements of ERISA 206; namely, defined contribution plans (such as 403(b) plans) that are subject to the minimum funding standards (e.g., plans to which contributions are required, such as money purchase plans, as opposed to discretionary) and/or plans that do NOT pay the entire account balance to a surviving spouse in a lump sum upon death (i.e., they provide for  an annuity benefit instead). If this language is in your plan document, chances are your plan is indeed subject to the survivor annuity requirements of ERISA 206, and the “gobbledygook” applies to your participants.    

However, within such plans, the provision applies only married participants who wish to designate a non-spousal beneficiary for their preretirement death benefit, so this will not apply to the significant number of plan participants who are either a) single, or b) married, but who designate a spousal beneficiary.    

The regulation states that such a designation may be made, with the consent of the spouse, only AFTER the first day of the plan year in which the participant turns age 35. If such a designation is made, as most plans permit, prior to this time, the designation automatically becomes invalid on the first day of the plan year in which the participant turns age 35. The designation is “revalidated” if the participant obtains a brand new consent from the spouse. If the participant fails to obtain a new consent and the participant dies prior to retirement, the spouse receives the death benefit in the form of a qualified preretirement survivor annuity, or QPSA.    

Though not many participants will be subject to this provision, it is important for administrators to understand it, and we thank you for bringing it to the attention of the Ask the Experts audience!  



NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.