ERISA establishes clear rules and guidelines for employer-sponsored retirement plans, imposing fiduciary duties upon anyone managing investments or making benefit determinations. As part of these regulations, plan participants must also carefully consider who they wish to receive the proceeds of life insurance or retirement assets after their death.
ERISA covers virtually all employer-sponsored pension and deferred compensation plans, along with welfare benefits like health, life, disability insurance and severance pay. Furthermore, it establishes standards and safeguards for plan fiduciaries while offering various forms of protection that benefit millions of American workers and their families.
An ERISA covered retirement plan beneficiary can usually be selected at the account owner’s discretion; however, in the case of married plan participants, federal law stipulates that their spouse be named primary beneficiary unless both agree in an acknowledged or notarized writing to another arrangement. Furthermore, should there be any dispute about who should benefit, an ERISA-governed plan’s beneficiary designation takes precedent over state divorce decrees.
People working in the private sector, who are self-employed or do not fall under ERISA coverage may not have to abide by certain provisions such as profit sharing or section 401(k). When this is the case, an individual can transfer their assets under ERISA to an IRA which does not fall under anti-alienation and preemption provisions of ERISA and does not provide special beneficiary protections.
As such, when rolling over an ERISA-covered pension or 401(k) asset into an IRA it may no longer list their spouse as beneficiary and could instead name someone else instead. While this may seem like a minor matter it’s essential that individuals understand how changes in personal circumstances and estate planning laws in their state of residence may impact these assets.
In bankruptcy proceedings, any interest held by an ERISA-covered plan beneficiary is usually considered part of the estate and made available to creditors. This holds true even if such interest was acquired through filing of a QDRO prior to declaring bankruptcy.
An individual should understand the complex laws relating to ERISA-specific beneficiary designations and how they could impact their ability to protect their retirement savings. A knowledgeable attorney can assist in navigating these complexities and carrying out your intentions as per law – reaching out today could save time!