Employers of all sizes offer their employees various forms of benefits. Some programs, like retirement plans and group medical insurance policies, are formal while others such as company cafeteria plans or vacation allowances may be more informal arrangements covered under ERISA (The Employee Retirement Income Security Act of 1974, as Amended).
ERISA establishes rules and guidelines that can help fiduciaries govern these benefit programs properly, setting clear standards of conduct such as loyalty to participants and beneficiaries’ interests, while prohibiting self-dealing and conflicts of interest; further requiring prudent judgment when making decisions related to plan assets and investments.
Beneficiary designations are an integral component of ERISA-governed retirement plans, pensions and other benefit programs. Participants may nominate any individual or entity they choose – such as their spouse, children or siblings – to receive assets upon their death from these plans. Unfortunately, selecting beneficiaries isn’t always as straightforward as it seems when circumstances change after making a selection decision.
For example, when an ERISA-covered plan participant dies while their spouse is still alive, their benefits must be distributed as a Qualified Joint and Survivor Annuity (QJSA), meaning their payments continue through their life regardless of who was designated in their original beneficiary designation. To opt out from receiving payments automatically through this mechanism, participants may submit a Spousal Waiver form.
Similar issues may arise if a participant remarries before their account owner passes away – their new spouse could claim half of its assets automatically upon remarriage before death occurs, regardless of beneficiary designations in place at that point in time. To protect themselves from this scenario, individuals should review beneficiary designations regularly following significant life changes such as marriage.
No matter how well-drafted or executed a beneficiary designation may be, disputes often arise over who should receive benefits of deceased participants. When this occurs, it’s essential that plan administrators take immediate steps to settle this dispute without risking paying out to two people by accident.
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