ERISA Beneficiary Question

[Guest Newmy]

My father passed away recently and although he had married within a year of his death, he still had his father listed as the beneficiary of his retirement account. I helped my grandfather complete the beneficiary paperwork and sent it in along with my father's death certificate. My grandfather received the disbursement of benefits (appx $108,000), but I am now worried about his potential liability since I have just learned about ERISA.

I fear that my father's new wife is automatically considered the beneficiary under ERISA stipulations, although my grandfather was listed as the beneficiary. I don't want the wife to come along and sue my grandfather to recover these funds. So where does the responsibility here lie when it comes to recovery: with the beneficiary or with the plan administrator? My father's death certificate clearly listed his marital status as well as his spouse's name, so it's not as though the plan administrator is unaware of his marriage.

If the wife were to sue, would she sue the plan administrator? Could my grandfather be named in a suit? If she were to file suit and ultimately prevail, would the plan administrator have responsibility to pay her claim (ultimately paying it twice) or would recovery come from the benefits that my grandfather received? And is there a statute of limitations as to her opportunity to file suit?

I appreciate any help. I do have an attorney, but he doesn't seem to be well-versed with ERISA.

[J Simmons]

I don't want the wife to come along and sue my grandfather to recover these funds. So where does the responsibility here lie when it comes to recovery: with the beneficiary or with the plan administrator? My father's death certificate clearly listed his marital status as well as his spouse's name, so it's not as though the plan administrator is unaware of his marriage.

If the wife were to sue, would she sue the plan administrator?

The wife's beef, if she has one, is with the plan (and plan administrator). Whatever her rights to the benefits, they are to have them paid from the plan. Her claim might have no traction. As the wife and your father were married less than a year before he died, the plan may provide that the wife is not treated as your father's "surviving spouse" and will not receive your father's benefits. Treas Reg setion 1.401(a)-20, Q&A-25 and -26. However, I've seen more than one plan that did not take advantage of this one-year rule. The plan documents would need to be reviewed.

Could my grandfather be named in a suit?

Yes, but it would likely not be proper in the wife's suit, unless the plan/plan administrator filed a third-party complaint against your grandfather to be repaid the $108k. It would be very unorthodox and probably be dismissed by the court if the wife sued your grandfather directly.

If she were to file suit and ultimately prevail, would the plan administrator have responsibility to pay her claim (ultimately paying it twice) or would recovery come from the benefits that my grandfather received?

If the wife were to prevail over the plan/plan administrator, it would pay benefits twice to the extent the plan/plan administrator could not recover the $108k from your grandfather.

And is there a statute of limitations as to her opportunity to file suit?

She must follow the plan's administrative claims procedures before she can file suit. Those claims procedures no doubt include time frames during which she must avail herself of the first appeal opportunity if the plan administrator initially denies her claim. The state's most analogous statute of limitations (usually limitations period for claims on a written contract) would apply to her claim for benefits.

I appreciate any help. I do have an attorney, but he doesn't seem to be well-versed with ERISA.

If the plan/plan administrator attempts to recoup the $108k from your grandfather, promptly find an attorney that is well-versed with ERISA.

[david rigby]

My condolences on the loss of your father.

We assume your reference to "retirement account" is a plan sponsored by his employer. If something else, then other rules may apply.

Other than the excellent advice above, there is a limited exception: if your father was employed by a governmental unit, the plan may not be subject to the ERISA survivor rules as outlined by JSimmons.

[Guest mjb]

My father passed away recently and although he had married within a year of his death, he still had his father listed as the beneficiary of his retirement account. I helped my grandfather complete the beneficiary paperwork and sent it in along with my father's death certificate. My grandfather received the disbursement of benefits (appx $108,000), but I am now worried about his potential liability since I have just learned about ERISA.

I fear that my father's new wife is automatically considered the beneficiary under ERISA stipulations, although my grandfather was listed as the beneficiary. I don't want the wife to come along and sue my grandfather to recover these funds. So where does the responsibility here lie when it comes to recovery: with the beneficiary or with the plan administrator? My father's death certificate clearly listed his marital status as well as his spouse's name, so it's not as though the plan administrator is unaware of his marriage.

If the wife were to sue, would she sue the plan administrator? Could my grandfather be named in a suit? If she were to file suit and ultimately prevail, would the plan administrator have responsibility to pay her claim (ultimately paying it twice) or would recovery come from the benefits that my grandfather received? And is there a statute of limitations as to her opportunity to file suit?

I appreciate any help. I do have an attorney, but he doesn't seem to be well-versed with ERISA.

It would be helpful if you could tell us if your father worked for since plans of government entities and churches, and some 403b plans of NP employers are exempt from ERISA.

Also what was the type of plan, e.g., a pension plan, 401k, profit sharing etc.

If the plan was subject to the ERISA provisions that protect spouses, the spouse could file a claim for benefits against the plan (assuming she did not waive her rights to the death benefits) and recover the 108k.

Plans can and do sue beneficiaries who refuse to return payments they are not entitled to on the doctrine of unjust enrichment, even if the plan was responsible for the error, i.e., not noticing that the employee was married on the death certificate.

[Guest Newmy]

Thanks so much to those of you who have replied so quickly. To further expound, in particular this is a 401K plan that is subject to ERISA.

In addition to the fact that the plan administrator could easily see his marital status on his death certificate, the HR rep at his company told me that when my dad got married, she reminded him on three occasions to update his forms (i.e. make the new wife the beneficiary) but he did not seem to want to change them, and subsequently never did. I even discussed my beneficiary concerns with the HR rep and she said that the company and administrator simply honor the beneficiary designation, regardless of his marital status.

So I see some conflicting info from the replies... some think that my grandfather would have to pay it back and others think not. That's what is so confusing about all of this, there seems to be no clear answer.

[Guest mjb]

Thanks so much to those of you who have replied so quickly. To further expound, in particular this is a 401K plan that is subject to ERISA.

In addition to the fact that the plan administrator could easily see his marital status on his death certificate, the HR rep at his company told me that when my dad got married, she reminded him on three occasions to update his forms (i.e. make the new wife the beneficiary) but he did not seem to want to change them, and subsequently never did. I even discussed my beneficiary concerns with the HR rep and she said that the company and administrator simply honor the beneficiary designation, regardless of his marital status.

So I see some conflicting info from the replies... some think that my grandfather would have to pay it back and others think not. That's what is so confusing about all of this, there seems to be no clear answer.

Under ERISA the spouse is the designated beneficiary who is legally entitled to the funds from the plan if she files a claim for payment unless the 1 year marriage requirement applies. (Judging from the HR reps comments maybe it does apply in this case.) If the spouse doesn't not file a claim it is unlikely that the plan would discover if an incorrect beneficiary was paid unless there is an audit of the plan distribution procedures.

[Guest Newmy]

One more question... does anyone know if personal liability umbrella insurance would cover my grandfather if he should find himself on the receiving end of a lawsuit in this case? I just want to help provide him with protection in the event that this issue does get to that level.

[david rigby]

There are lots of different types of liability insurance, so the answer to your question is "maybe". You should probably approach a competent insurance advisor, who is familiar with umbrella coverage, to get an answer for your particular situation.

[PLAN MAN]

I guess I'm missing the point. Why do you think your grandfather is entitled to keep the distribution if it is determined the spouse is the proper beneficiary?

[Kimberly S]

There are lots of different types of liability insurance, so the answer to your question is "maybe". You should probably approach a competent insurance advisor, who is familiar with umbrella coverage, to get an answer for your particular situation.

Of course, when you ask the question, the agent may decline to sell you the coverage.

[Guest mjb]

There are lots of different types of liability insurance, so the answer to your question is "maybe". You should probably approach a competent insurance advisor, who is familiar with umbrella coverage, to get an answer for your particular situation.

Umbrella coverage provides additional protection above standard personal liability insurance in the event of liability for injury to another person as result of negligence. For this reason umbrella policies require the insured to carry a certain amount of auto and homeowners coverage. The receipt of a payment from a retirement plan which your grandfather is not entitled to receive does not arise because of an act of negligence on his part but is unjust enrichment under the law of equity. Unless the umbrella policy covers a defense for an action in equity there will be no coverage under an unbrella policy.

[Guest Sieve]

Same question as Plan Man & (indirectly) mjb. If it turns out that grandfather was not, in fact, entitled to the death benefits, on what basis would he refuse to return the funds to the plan (or at least agree to return them over time in case they'd been spent already)? In that case, the $108,000 isn't his to keep.