Most people recognize the significance of retirement savings as part of their overall financial strategy. Depending on how many assets a person accumulates and for how long they live, retirement accounts could form the bulk of their wealth. Therefore, it’s crucial that individuals carefully consider their options for dispersing assets upon death – usually by filling out or updating beneficiary designations on life insurance and retirement accounts – or they risk having their assets pass to ineligible recipients without protection. Thankfully, Erisa retirement plan beneficiary rule exists to safeguard those who work hard for their money – helping ensure it does just this for those who work hard accumulating assets!
The Employee Retirement Income Security Act (ERISA) sets forth minimum standards that private employers must abide by regarding employee-sponsored retirement, health and life insurance plans sponsored by private employers. As a federal law, its interpretation and enforcement is overseen by the Employee Benefits Security Administration (EBSA), a division of the U.S. Department of Labor.
ERISA governs two primary retirement plans, defined benefit and defined contribution. A defined benefit plan, more commonly referred to as a pension plan, promises a fixed monthly payout after retirement based on factors like earnings history and length of service; by contrast, defined contribution plans enable employees to select how much money they would like in retirement by contributing funds into an account which are then invested and ultimately determine how much will be available in their account at retirement time.
ERISA rules dictate that when someone dies while married, their surviving spouse automatically inherits half of their assets in their account. They can, however, waive this right by filing a spousal waiver form – so it is crucial that after divorce their beneficiary designations are updated to prevent their ex-spouse from inheriting it all.
If a person fails to update their ERISA beneficiary designations after divorce, their plan administrator is legally obliged to distribute any proceeds of their account directly to their former spouse despite being removed in the divorce decree. This can have devastating financial repercussions and is an example of unintended consequences.
Although a person may make the right choices regarding life insurance and retirement plans, they cannot always predict how those decisions will play out in practice. Therefore, it is essential for an individual to carefully consider their options and review beneficiary designations on an ongoing basis in order to ensure their hard-earned money reaches those they intend it for. The Peace Law Firm can assist with this; contact them now to schedule a consultation appointment!