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state law--divorce


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I understand that some states require that if a participant's beneficiary is his/her spouse, that designation is automatically revoked upon divorce.

Would appreciate your sharing how you handle this operationally.

Thanks.

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I understand that some states require that if a participant's beneficiary is his/her spouse, that designation is automatically revoked upon divorce.

Would appreciate your sharing how you handle this operationally.

Thanks.

It depends. If the plan is subject to ERISA the state law is preempted and the spousal beneficary designation will be valid unless the participant has remarried. If the plan is exempt from ERISA then state law would apply if the state law requiring revocation includes annuity contracts and mutual funds.

The problem is that the plan administrator or provider needs to be notified of the divorce. Also even in non ERISA plans the parties could agree to keep the ex spouse as beneficiary after divorce by executing a QDRO or property settlement agreement. I dont see any liabiity to a provider who pays an ex- spouse pursuant to a valid beneficary designation or divorce agreement if it has not been notified of the revocation of the beneficary designaton by the participant.

mjb

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In addition to Matt Bozek's suggestions, there are at least two further opportunities to help protect a non-ERISA plan (and its administrator):

(1) Look carefully at the plan's choice-of-law and exclusive-venue provisions. Sometimes it's feasible to use these provisions to apply only the law of a State that doesn't have any deemed-revocation-on-divorce statute.

(2) A deemed-revocation statute might say that its general presumption applies "unless it appears from the wording of the [beneficiary] designation ... that the designation was intended to survive the divorce." See, for example, 20 Pa. Consol. Stat. 6111.2. If a beneficiary-designation form had said, above the participant's signature: "I intend all of my beneficiary designations to survive my divorce from any person (including any person designated or mentioned above).", consider whether that might be enough to undo a deemed-revocation statute.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Another alternative is don't allow beneficiary designations; i.e., all unpaid amounts go to the estate. Yes, a bit of an extra complication at death for the survivors, but maybe it's worth it.

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Another alternative is don't allow beneficiary designations; i.e., all unpaid amounts go to the estate. Yes, a bit of an extra complication at death for the survivors, but maybe it's worth it.

Just what kind of plan is going to have such a provision?

Under an ERISA plan spouses must be default beneficaries of death benefits. 403b annuity contracts are approved under state law and all provide for beneficiary designations. It is highly unlikely that a mutual fund for a 403b plan would not provide for payments to a designated beneficiary simply because it is a good business practice and avoids unnecesary litigation involving the fund when there is no personal representative such as an executor who represents the estate.

How would a 403b plan enforce such a provision if the underlying contracts in which the benefits are held have a beneficiary provision?

mjb

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The OP describes it as a non-ERISA plan. I have no idea what kind of plan he/she is talking about. In drafting top hat nqcps, phantom stock plans and the like, I always raise the question of whether they want beneficiaries or not.

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I've seen a 401(a)/401(k) plan that had no provision for a participant to designate a beneficiary. Instead, the plan provided the death benefit to the participant's surviving spouse (and didn't allow any qualified election against that provision) or, on the absence of any surviving spouse, to the personal representative of the participant's estate.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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The OP describes it as a non-ERISA plan. I have no idea what kind of plan he/she is talking about. In drafting top hat nqcps, phantom stock plans and the like, I always raise the question of whether they want beneficiaries or not.

There is a big difference between an NQDC plan where the participants have no ownership interest in the plan assets and the employer has sole descretion to determine the distribution options and a 403b plan when the employees have 100% vested ownership of the assets in the plan and a separate contractual right to designate beneficaries under the annuity contract or mutual fund agreement apart from any language in the 403b plan. Under state law the amounts in the 403b annuity contract or mutual funds are non probate assets which means that they can be transferred to heirs without the need to pay for probate costs, an attorney or an executor or administrator to distribute the deceased's benefits.

mjb

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