A recurring problem in the world of benefit plan administration is an incorrect or unrevised beneficiary designation form. Many participants complete their beneficiary designations incorrectly because they don’t read the instructions carefully or don’t understand the instructions. Beneficiary designation forms are often filed away without review, and mistakes surface after the death of the plan participant. Beneath is a list of common beneficiary form mistakes and misconceptions:
1.) Beneficiary-designation form is not signed and dated.
2.) Percentages do not add up.
3.) Participants erroneously believe that their wills override all beneficiary designations.
4.) Participants erroneously believe that a divorce or property settlement automatically voids the former spouse as the beneficiary.
5.) Participant does not update beneficiary designations to reflect life changes.
To avoid litigation stemming from incorrect or incomplete beneficiary designations, plan administrators should adopt these prudent practices to prevent costly litigation:
- review all beneficiary-designation forms submitted by employees to be sure that they are signed and dated, that they “add up,” – and make sense;
- encourage an annual review of beneficiary designations at open enrollment;
- when aware of a change in life circumstances, remind the participant of the possible need to reevaluate beneficiary designations;
- have a specific method of retaining the beneficiary designations – we advise electronic backup; and
- keep the old designations in case there is a challenge to the current one.
See Sandra Feingerts, “Are Your Beneficiaries Heir Tight,” JDsupra.com (August 18, 2014).
Posted by Chuba Abaelu,
Associate Editor, Wealth Strategies Journal