One can invest wisely and save for their retirement assets, yet all their efforts may go to waste if proper steps are not taken to ensure those assets will go to the intended beneficiary upon their death. It is therefore essential to regularly review beneficiary designations in all retirement plans in order to stay current.
ERISA governs retirement accounts and other employee benefits such as health reimbursement accounts, flexible spending accounts and life insurance. Plan sponsors must abide by specific regulations set forth in ERISA as well as submit reports to the government for each plan they administer; additionally there are provisions in ERISA regarding participants and beneficiaries rights and obligations.
One of the more significant requirements under ERISA is for plan participants to name beneficiaries who will receive benefits upon their death, which applies both for defined benefit plans as well as defined contribution ones. A defined benefit plan promises a set monthly amount at retirement, either exact dollar amounts or calculated using salary and years of service; on the other hand, defined contribution plans provide participants with lump sum or periodic payments set out at some future date.
Most people choose their spouse and/or children as beneficiaries in their retirement plans, however there should be other considerations taken into account. A spouse automatically inherits half of assets in an ERISA-governed account unless an executor executes a Spousal Waiver and names another beneficiary such as an estate or trust as primary recipient. It’s wise to review beneficiary information regularly – particularly after marriage or divorce has taken place.
Change of beneficiaries under an ERISA plan is straightforward. Plan participants simply need to contact their plan’s administrator – often their employer but sometimes another third-party entity responsible for running it – with their request and include in it a statement that states your intentions as per ERISA along with an request for copies of any necessary documentation required under law.
Plan administrators have 30 days to respond and deliver any documents requested, and if they fail to do so, requestors should follow up by sending polite reminders of this timeliness.
If you need assistance regarding ERISA or the division of retirement assets after divorce, feel free to reach out. ACTEC Fellows Bob Kirkland and Justin Miller would be more than willing to assist!