Beneficiary designation

[JDuns]

During its December open enrollment window, a plan requires employees to re-designate their beneficiaries and has clearly communicated (in mandatory employee meetings and written communications) that prior elections will not be carried forward.

The plan provides that the beneficiary must be designated in accordance with procedures set forth by the plan.

A significant number of employees did not update their beneficiaries.

Does anyone have any concern with paying benefits to the default beneficiary (spouse or estate) rather than a previously designated beneficiary?

Any past experiences would be helpful.

[WDIK]

What is the basis for declaring that "prior elections will not be carried forward"?

I may be exposing my ignorance yet again, but I would think that it would be necessary to maintain the prior designations in the absence of an affirmative election to change them.

[JDuns]

The plan previously relied on paper files and had not input beneficiary data into its systems. The employer plans to insert the current beneficiary designation in the annual statements to remind employees to update their information.

[david rigby]

JDuns said:

... a plan requires employees to re-designate their beneficiaries...

Does the plan really state this, or did the plan administrator make it up? If this administrative policy, is there a good reason for it? Seems onerous, even unwise. It may have been "clearly communicated", but that is in doubt since

Quote

A significant number of employees did not update their beneficiaries.

[Bird]

Does anyone have any concern with paying benefits to the default beneficiary (spouse or estate) rather than a previously designated beneficiary?

Yes. I can see asking people to fill out new forms but to declare prior designations invalid is bizarre.

[Guest Pensions in Paradise]

JDuns - who came up with the idea to force participants to redesignate beneficiaries every year? That is the most ludicrous thing I have ever heard of, and I've been in this field for quite a while. The plan sponsor needs to seriously rethink its policy. Otherwise, I can guarantee you that eventually the plan sponsor will get dragged into court when a "former" beneficiary files a claim for benefits.

[Kirk Maldonado]

Am I missing something? It seems like the plan is taking inconsistent positions:

1. You must re-designate a beneficiary each year; but

2. If you don't, then your prior designation applies.

Thus, if a person wants to keep the same beneficiary designation, all that they have to do is to fail to turn in a new form. If that is true, doesn't that completely invalidate the position that each participant must re-designate his or her beneficiary every year?

This procedure seems to be a monumental waste of time.

[david rigby]

I agree with Kirk that it is a waste of time, but I read the original post to mean:

2. If you don't, then the plan's default definition will apply.

So now we are back to

eventually the plan sponsor will get dragged into court when a "former" beneficiary files a claim for benefits.

[JDuns]

Sorry for being unclear - and I just realized that I posted this to the wrong board. It is not the retirement plan beneficiary designations but the welfare benefit plan (life insurance) designations.

The employer had previously processed paper enrollment and beneficiary designations. However for the recently concluded open enrollment, they moved to an electronic process for both. Rather than searching the paper files for all employees and inputting the prior elections, the employer wanted to have all employees reset their designations. The employer proposes that the following rules would apply in processing distributions to beneficiaries:

1) according to the most recent designation made during or after the 2005 open enrollment window, if any

2) according to the plan's default provisions (to the spouse or estate), i.e. treating any election made prior to the open enrollment window for 2005 (in 11/04) as invalid.

Given the number of employees who failed to redesignate their beneficiaries, the employer has expressed some willingness to reconsider their prior position and search the paper files. However, that raises other issues since we could not say on the statements:

"Currently you have [designated ____ as your beneficiary] or [no beneficiary on file and your benefits would be payable to your spouse, if any, or to your estate]. To designated different beneficiaries, contact ..."

The employer regularly reminds employees to update their beneficiary designations, but has had several employees die with prior spouses named as beneficiaries. They wanted to be able to remind employees of their designations as a prod to update (or to ward off competing claims).

[david rigby]

Good for the employer to remind EEs what the current designation is; maybe not so good to require a new form.

[Kirk Maldonado]

pax:

I agree with your reading of the original post.