Plan participants may wish to name beneficiaries on their retirement accounts and life insurance policies to facilitate the transfer of their assets upon death, potentially bypassing probate proceedings and saving estate taxes and legal fees. It’s crucial that beneficiary designations on retirement accounts and life insurance policies be up-to-date and accurate, otherwise disputes could ensue; this article addresses some of the more frequently encountered problems related to ERISA retirement plan beneficiaries as well as ways they can be avoided.
The Employee Retirement Income Security Act (ERISA) sets minimum standards for most employer-sponsored retirement plans, health care benefit plans, and employee fringe benefits. It imposes stringent fiduciary obligations upon those managing such plans, mandating they act in the best interest of plan participants and beneficiaries while creating fair and accessible mechanisms for resolving claims and disputes. Furthermore, it protects individuals by giving them a private right of action against violations to enforce its provisions.
Most retirement accounts governed by ERISA, such as 401(k), will automatically name their spouse as beneficiaries unless specifically waived by plan participants. It’s important that, should divorce occur or any life event alter your relationship, that beneficiary designation be updated appropriately following any life events which could impact it – otherwise they risk receiving nothing!
Many times after divorce or other life changes, people fail to update the beneficiaries on their ERISA retirement plans as planned and inadvertently leave their ex-spouse with access to the retirement account or life insurance proceeds. To avoid this from occurring, it is prudent to review beneficiary designations on an ongoing basis and update them as necessary.
An issue which often arises with ERISA retirement plans is what happens if both plan participants and beneficiaries pass away simultaneously, raising complex legal questions as to who should receive their proceeds in this instance. If one was the intended beneficiary for example, and one is no longer around to collect on it then legal questions of inheritance might need to be resolved as quickly as possible.
If a person dies with unnamed beneficiaries on an ERISA-regulated retirement account, typically their estate and beneficiaries will distribute the proceeds according to their will or estate plan. But in certain instances this process can become complex – especially if there was a beneficiary dispute between spouses – in which case consulting with an experienced ERISA attorney such as Tucker Cheadle can help determine the appropriate course of action for your unique situation. Reach out today – your initial consultation with him is always free of charge.