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Carol V. Calhoun

Beneficiary designation received after death

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We're dealing with a situation in which a participant named his spouse as his beneficiary of his 401(k) plan.  He later divorced, but did not at that time change the beneficiary designation.  (Under Egelhoff v. Egelhoff, 532 US 141 (2001), the divorce would not itself change the beneficiary designation.)  However, after he died, his sister sent a signed beneficiary designation in favor of the sister.  The plan is now asking us whether they can honor a beneficiary designation signed by the participant, but not received until after the participant's death.  The plan document is silent on the issue.

My gut reaction is that the plan should simply refuse to pay until this is straightened out, and file an interpleader action if one of the parties sues for benefits.  But has anyone seen any guidance as to whether a beneficiary designation not received until after death can be honored?

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Gotta ask - what does the plan say?  Are there established plan procedures requiring submission to the plan before the beneficiary can be considered changed?

Can it be established that the signed beneficiary designation sent in by the sister was not a forgery?  How long before the participant's death was it signed?

Has the ex-spouse claimed benefits?  Don't you need conflicting claims to gain access to an interpleader action?

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Apart from the issues 2 Cents raised - especially with respect to the legitimacy of the second beneficiary form (forgery, death bed coercion, etc. - which are WAY beyond scope here), our policy does not "require" receipt pre-death, assuming all the other formalities exist.  In many ways, this issue has become rarer because of "on-line" beneficiary designations (which raise their own set of issues), and I can't say I've ever seen a pre-death submission of a bene form when an existing bene form is out there.

I'd wait for competing claims and interplead.  It's the only to avoid double payment of benefits.

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I would never in a million years feel comfortable just paying it to the sister.  My natural first reaction (and probably the reaction of the trier of fact in court) is that a competent person would not knowingly complete a beneficiary designation and then give it to his sister or leave it in a drawer to be found after his death, rather than sending it to plan/employer.  Sure, it's possible, but I would interplead this unless you can get the ex-spouse to waive or the ex-spouse and the sister to settle.  I don't see a qualification problem with honoring the ex-spouse's waiver or a settlement between the ex-spouse and the sister.    

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I am like everyone else here I have never seen a rule that says it has to be received before death.  The question is the convenient timing of it being found raises concern. 

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Our VS document has a provision that automatically rescinds the designation of the ex-spouse as beneficiary upon divorce, unless the participant makes a new beneficiary designation naming the ex. It's not your question, but does their plan document have a similar provision?  If it does and the ex-wife is out of the picture, who would be the beneficiary? 

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Agree with Kevin to double check the document because that sort of provision has become much more common among pre-approved plans. Also, I do not think there is any prohibition against receiving a valid beneficiary designation post-death, the 401(a)(9) regulations even mention a designated beneficiary by the 9/30 of the year following the year of death. That said, as everyone else notes, the validity/authenticity of the beneficiary designation is the important question of fact.

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19 hours ago, Kevin C said:

Our VS document has a provision that automatically rescinds the designation of the ex-spouse as beneficiary upon divorce, unless the participant makes a new beneficiary designation naming the ex. It's not your question, but does their plan document have a similar provision?  If it does and the ex-wife is out of the picture, who would be the beneficiary? 

If there is no valid designated beneficiary, the plan should lay out a hierarchy of default beneficiaries.  For example, some plans have spouse, children, parents, siblings then estate, while others may go directly from spouse to estate.  Look at the plan for your answer!

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Yes, I already knew to check the plan document.  But in the absence of anything useful in it, it looks like we'll have to tell both the ex-wife and the sister to submit formal claims, get as much evidence as we can, and hope that the facts end up being clear enough that this never gets to court.  If it does, we may have to file that interpleader action.

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@My 2 cents:  I'm not sure how we'd ever get to the point of saying there is no valid beneficiary.  We've got two potentially valid beneficiaries in this case.  The designation of the ex-wife would be valid, unless it was revoked by the designation of the sister.

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Granted that in this instance, it should not have to go to the default beneficiary provisions.  You have ostensibly valid claims, but they cannot both actually be valid.  However, if the plan says that ex-spouses have to be redesignated or they cease to be the designated beneficiary upon the occurrence of the divorce, and the sister's claim is also rejected, you might be facing a no valid beneficiary designation situation. 

Appointed task for plan administrator - must determine if designation of sister was a valid beneficiary election or not.  If it was valid, then it would per se have revoked the ex-wife's designation.  It might be a good idea to allow a limited amount of time for the ex-wife to contest that determination.  If it was not valid, then it might be a good idea to allow a limited amount of time for the sister to contest that determination.  If the other contests the plan administrator's determination, what choice would there be but to interplead it?

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Carol, not trying to be snarky, but it appears that you have only one claim (ie, the sister).  If I'm reading correctly, the PA should act on that claim, approve/deny/etc.  However, that is (might be?) different from "telling" the ex-wife to submit a claim.

Am I just being picky?

 

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33 minutes ago, david rigby said:

Carol, not trying to be snarky, but it appears that you have only one claim (ie, the sister).  If I'm reading correctly, the PA should act on that claim, approve/deny/etc.  However, that is (might be?) different from "telling" the ex-wife to submit a claim.

Am I just being picky?

 

I don't see the issue now as an "approve/deny" dichotomy.  It's an "it depends" - depending on the validity of the beneficiary form designating the sister as the beneficiary.  In other words, I don't think the PA can yet act on the claim, until the issue of the validity of the bene form is resolved.

Carol's initial question still needs to be answered:  Is a bene form that is signed (assuming not a forgery) and otherwise complies with the required formalities valid if not delivered to the PA before the participant dies?

IMHO, I'm don'te of what relevance the death of the participant has on the question (UNLESS the plan requires "delivery" by the participant as part of the requirements for it to be valid). I've never seen that as a requirement, and absent that spelled out as a requirement, the PA should be able to judge the validity of the bene form from the document submitted, and any extraneous material needed to verify it's authenticity.

Put another way, old a PA who receives a paper bene form in the mail be required to verify if the participant is alive at the time of receipt?  I would suggest that if they were alive at the time of execution, absent coercion, etc., it's probably valid.

Then - you get to the approve/deny question - which is then easy, and defensible despite a potential competing claim from the ex.

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But short of accusing the sister of fraud (assuming an acceptable beneficiary designation form was used), how could the sister's claim be denied?  I would be surprised if a beneficiary designation, properly signed by the participant, would be treated as invalid just because the form was not received by the plan prior to the participant's death.  And I stand by one thing I questioned a few posts ago - how long ago was the beneficiary form signed?  If it was signed on the participant's deathbed, absent evidence of improper influence from the sister (and where would that kind of evidence come from?) or incompetence, that would tend, in my mind, to make it more likely to be valid.  GIven that the participant and the ex-spouse had been divorced and (one presumes) no attempt had been made to obtain a QDRO, wouldn't it actually be more likely that the participant's wishes would be that the money go to kin?

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1 hour ago, david rigby said:

Carol, not trying to be snarky, but it appears that you have only one claim (ie, the sister).  If I'm reading correctly, the PA should act on that claim, approve/deny/etc.  However, that is (might be?) different from "telling" the ex-wife to submit a claim.

Am I just being picky?

 

Ex-wife's new husband has already inquired about benefits (presumably being unaware of the beneficiary designation in favor of the sister).  So, there isn't a second claim right now.  But we're wary of paying the sister, then having a claim from the ex-wife come in.

My instinct would be to tell the ex-wife that there is a later beneficiary designation in favor of the sister, and that if for any reason she wants to contest the validity of that, she needs to file her own claim.  No, we wouldn't "tell" her to submit a claim.  But with an inquiry having already been filed, I'm not sure we can simply ignore it and process the sister's claim.

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1 hour ago, My 2 cents said:

Appointed task for plan administrator - must determine if designation of sister was a valid beneficiary election or not.  If it was valid, then it would per se have revoked the ex-wife's designation.  It might be a good idea to allow a limited amount of time for the ex-wife to contest that determination.  If it was not valid, then it might be a good idea to allow a limited amount of time for the sister to contest that determination.  If the other contests the plan administrator's determination, what choice would there be but to interplead it?

Yeah, my sense is that having already received an inquiry from the ex-wife's new husband, we should at least provide some notice to the ex-wife, and allow her to contest the designation of the sister.  If she doesn't, PA is in the clear.  If she does, it can get evidence from both sides.  The PA's determination is more likely to be respected if it can show that it notified everyone and allowed everyone to present their claims.

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21 minutes ago, My 2 cents said:

But short of accusing the sister of fraud (assuming an acceptable beneficiary designation form was used), how could the sister's claim be denied?  I would be surprised if a beneficiary designation, properly signed by the participant, would be treated as invalid just because the form was not received by the plan prior to the participant's death.  And I stand by one thing I questioned a few posts ago - how long ago was the beneficiary form signed?  If it was signed on the participant's deathbed, absent evidence of improper influence from the sister (and where would that kind of evidence come from?) or incompetence, that would tend, in my mind, to make it more likely to be valid.  GIven that the participant and the ex-spouse had been divorced and (one presumes) no attempt had been made to obtain a QDRO, wouldn't it actually be more likely that the participant's wishes would be that the money go to kin?

I don't want to speculate ahead of time as to what arguments the ex-wife might make.  I just think that when we've already got inquiries from two different parties, we should notify both of them of this fact and let them both submit claims.  PA can adjudicate those claims if they materialize.

And as to my original question, absent a plan provision, I'm thinking I've got confirmation that the mere fact that the beneficiary form wasn't filed until after the death isn't fatal.  Now the task is to make sure that the PA follows all claims procedures, so that its determination is likely to be respected if the whole mess ends up in court.

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I am not a lawyer, but it seems to me that the first step is to decide if the form designating the sister as the participant's beneficiary is in order.  If it is, there doesn't even appear to be a legitimate conflict.  Tell the ex-spouse and her new husband "The participant completed a more recent form and named someone else as the beneficiary, so unless you have substantial grounds for challenging this designation, the proceeds will be paid to the newly designated beneficiary."  Give them a little time to react, and unless you hear back from them or their attorney, it should be safe to pay it out.  Wouldn't the plan administrator's determination that the participant changed his beneficiary prior to death be given deference in a court of law, should the proceeds be paid out and a later challenge filed?  We aren't talking about common law spouse versus common law spouse here.  The participant was divorced and nothing was filed with the plan limiting the participant's ability to change his beneficiary.  There isn't any question as to whether the new beneficiary is actually the participant's sister, is there?  Absent something arbitrary and capricious on the part of the plan administrator, don't courts have to defer to their determinations on matters like this?  Wouldn't the first thing that the plan would do, should the ex-spouse file a suit claiming the proceeds, be for the plan to seek summary judgement?  And under what circumstances would that be denied?

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27 minutes ago, My 2 cents said:

I am not a lawyer, but it seems to me that the first step is to decide if the form designating the sister as the participant's beneficiary is in order.  If it is, there doesn't even appear to be a legitimate conflict.  Tell the ex-spouse and her new husband "The participant completed a more recent form and named someone else as the beneficiary, so unless you have substantial grounds for challenging this designation, the proceeds will be paid to the newly designated beneficiary."  Give them a little time to react, and unless you hear back from them or their attorney, it should be safe to pay it out.  Wouldn't the plan administrator's determination that the participant changed his beneficiary prior to death be given deference in a court of law, should the proceeds be paid out and a later challenge filed?  We aren't talking about common law spouse versus common law spouse here.  The participant was divorced and nothing was filed with the plan limiting the participant's ability to change his beneficiary.  There isn't any question as to whether the new beneficiary is actually the participant's sister, is there?  Absent something arbitrary and capricious on the part of the plan administrator, don't courts have to defer to their determinations on matters like this?  Wouldn't the first thing that the plan would do, should the ex-spouse file a suit claiming the proceeds, be for the plan to seek summary judgement?  And under what circumstances would that be denied?

There are a number of bases on which the ex-wife could potentially challenge the designation:

  • Forged signature.
  • Undue influence.
  • Fraud.
  • Incompetence of the participant.

And incompetence or undue influence are particularly likely to be an issue in the case of a form signed immediately before death.  So in an instance in which we've already had an inquiry on behalf of the ex-wife, I wouldn't want to tell the PA just to determine whether the form is in order, without allowing the ex-wife a chance to respond.

Best outcome is that the ex-wife just goes away on being told that there is a subsequent designation.  But if she does not, the PA's determination is most likely to be upheld if there is a showing that it did its best to determine the validity of any competing claims.

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IMHO, it's hasty to assume an oversight/mistake when the participant did not change the beneficiary at divorce.  No one in this discussion, including the sister, is aware of any "horse trading" in the property settlement.  It is possible the participant's inaction is exactly what the parties intended. 

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14 hours ago, My 2 cents said:

But short of accusing the sister of fraud (assuming an acceptable beneficiary designation form was used), how could the sister's claim be denied?  I would be surprised if a beneficiary designation, properly signed by the participant, would be treated as invalid just because the form was not received by the plan prior to the participant's death.  And I stand by one thing I questioned a few posts ago - how long ago was the beneficiary form signed?  If it was signed on the participant's deathbed, absent evidence of improper influence from the sister (and where would that kind of evidence come from?) or incompetence, that would tend, in my mind, to make it more likely to be valid.  GIven that the participant and the ex-spouse had been divorced and (one presumes) no attempt had been made to obtain a QDRO, wouldn't it actually be more likely that the participant's wishes would be that the money go to kin?

I think you are misreading my post.  We agree - I just emphasize that step ONE is to determine the legitimacy of the sister's bene form (which is ALWAYS step one when a bene form is to be used).  The number one source of questions to my team (a group of ERISA SME's) are death benefit questions - often concerning conflicting bene claims.

The mere existence of a previously submitted bene form that absent the appearance by the sister of a different one would have been the "valid" one raises a question - not an insurmountable one - but one that the plan plan fiduciaries will have to decide.

As I've said, absent evidence that the sister bene form is invalid for some reason (other than not having been "submitted" until after death - which I think is a non-issue) - the fiduciaries have to FIRST make a determination that it is, indeed, valid.  Then approving the claim should be a non-issue.  The fact that there may be a competing claim - and risk involved in litigation - is why I stress the need to carefully follow the steps and document the reasons why they think the sister form is valid.  It would be invaluable if needed to defend their actions in court.

Keep in mind, even thought the correct thing is done doesn't mean the fiduciaries won't be sued - it's all about making sure the defense against that suit is well prepared BEFORE it's needed.

 

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