“We have gotten into a bit of a misunderstanding with our 403(b) plan recordkeeper as to who is responsible for maintaining updated beneficiary designations. Who is ultimately responsible for maintaining such designations?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
As with many compliance questions, the answer to this one resides, at least initially, in your plan document. The document should contain language stating precisely who is responsible for maintaining plan records, which would include beneficiary designations. In many plan documents, the entity responsible is the plan administrator, which is typically the employer or a committee.
However, that does NOT mean that the responsibility cannot be delegated to a recordkeeper via a service agreement with that provider, and in this age of electronic enrollment, that is often the case. However, the Experts have come across situations, particularly in smaller plans, where the plan sponsor thought the recordkeeper was maintaining the records, but the recordkeeper thought the plan sponsor was maintaining the records! Obviously, this is not a good situation and should be avoided.
Thus, plan sponsors should review the service agreement with their recordkeeper and confirm whether the recordkeeper is responsible for obtaining and storing beneficiary designations. In addition, there needs to be clear procedures in place that ensure that beneficiary records are properly updated for life events, such as marriage, divorce, etc. Finally, since the plan participants are often the weak link in the beneficiary designation chain, plan sponsors/recordkeepers should communicate to participants on a regular basis the importance of updating their beneficiary designations.
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.
Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.