Beneficiary Designation Forms

[CLE401kGuy]

A participant completed his primary bene election as 100% to his wife and 50% to his son - then his 2nd son as 50% under contingent - he most likely meant to name the 2 sons as 50 / 50 contingents....

Anyway... our firm did not audit the incorrectly completed bene form completed by the participant - we scan for our files and then forward the original to the client...

The client rec'd the form and was very angry / upset that we did not audit the form to see that 150% was named as primary and that the form should be re-completed....

What do others do with bene forms? Do you audit them for accuracy / correct completion? Do you catch obvious errors and return for completion of new forms? Or do you touch them at all and instead forward directly to the client for them to review / store?

Thanks!

[Peter Gulia]

Without remarking on which is a good or bad practice, my experience is that some small TPAs do check beneficiary designations, and big recordkeepers don't.

Along with Ted Triska's query, some of us might be interested in a related question: assuming that a service isn't free and might be paid for from the plan's (rather than the employer's) assets, is it a smart use of plan assets to check beneficiary designations? Why or why not?

[My 2 cents]

Which is the better use of plan assets - spend a little to make sure that beneficiary designations are coherent, or spend who knows how much when the lawyers have to get involved after someone dies who had allocated 150% of the benefit among a group of beneficiaries?

[CLE401kGuy]

Which is the better use of plan assets - spend a little to make sure that beneficiary designations are coherent, or spend who knows how much when the lawyers have to get involved after someone dies who had allocated 150% of the benefit among a group of beneficiaries?

to my 2 cents.... what does your firm do? a cursory review? do you charge? i'm just curious... also at what level do you implement - administrative staff review? administrators who work on the plan? if you're doing a review, i'd like to perhaps implement something similar...

[Bill Presson]

We do not collect or review beneficiary designations. We have the employer review the forms and maintain the originals in the personnel files. We don't even keep copies and if anyone sends us copies, we shred them.

[K2retire]

We do not collect or review them either. However, we do keep copies if they are sent to us.

[austin3515]

We send them right back to the client wth a letter that says this:

I have enclosed Participant Beneficiary Designation form(s) which were sent to us. Because Beneficiary Designation forms will typically only be needed several years in the future (if ever), the only logical place to store this critical document is in the employee’s personnel file. Typically, the personnel file is the only collection of documents regarding an employee that is maintained throughout their career and beyond.

Therefore, we are returning the Beneficiary Designation form(s) to your office to be filed in the Participant’s personnel file. For the reasons stated above, we do not maintain Beneficiary Designation records.

If you have any questions, please do not hesitate to call.

What in the world would you do on a takeover plan????

[Peter Gulia]

Bill Presson's and austin3515's ideas that a service provider might prefer not to have possession of records (and get rid of any that are unwelcome) make sense (at least for a business that chooses not to provide a service of checking the internal consistency of the beneficiary designations).

Should we be concerned that putting a retirement plan beneficiary designation in the participant/employee's personnel file (if someone doesn't render more guidance) might result in mistakenly destroying the record sooner than ERISA permits, and possibly sooner than the record could be needed to decide a claim to a death benefit? Many employers destroy a personnel file about four years after the former employee's employment ended. Because a retirement plan might not require a beneficiary to take a death benefit until five years after the participant's death, could a beneficiary designation that's amid a whole personnel file get scrapped before the retirement plan's administrator needs to look at that record?

[austin3515]

Honestly, my hands are tied. It's an impossible task. It is simply not possible for even for the smallest of TPA's to keep track of thousands of beneficiary forms. You're setting yourself up for failure, and consequently liability if you endeavor to take this on.

[Peter Gulia]

Understand the reasons for a service provider to get rid of the beneficiary designations.

My further thinking-out-loud is about whether a service provider should or shouldn't present a particular suggestion on how the plan administrator keeps the records.

For the plan administrator that must keep the beneficiary designations, might there be a better filing system than putting the beneficiary designations mixed in with employer records that aren't the retirement plan's records and are likely to have different retention times? Is this at least a question that the plan administrator must or should evaluate?

A service provider that isn't a plan fiduciary usually doesn't have a duty to give uncompensated advice to the plan administrator. But could a send-'em-back letter suggest that the plan administrator ask for its employee-benefits lawyer's advice about how to keep plan records?

Would such a suggestion, even if ignored, be a stronger defense for a service provider than a volunteered too-specific suggestion?

Or is there a business problem that a service provider's client will be offended by a suggestion that it might need or want advice about how to keep plan records?

[GMK]

The plan administrator is responsible, so the plan administrator should review the beneficiary forms as they come in (there's no heavy lifting involved) and keep them in the participant's pension plan file (separate from the employment personnel file). The generally long time from when the plan receives a beneficiary form to when the PA needs it could see one or more TPA changes, so the PA really ought to keep the form on hand. At least that's what we do.

If the PA wants to pay the TPA to keep backup copies or to review incoming beneficiary forms, so be it.

Plans that outsource everything down to beneficiary form processing better have darn good oversight procedures and backup record keeping, because in the end, no one but the PA is responsible for the plan, its operations, its filings, and its records.

[masteff]

Should we be concerned that putting a retirement plan beneficiary designation in the participant/employee's personnel file (if someone doesn't render more guidance) might result in mistakenly destroying the record sooner than ERISA permits, and possibly sooner than the record could be needed to decide a claim to a death benefit? Many employers destroy a personnel file about four years after the former employee's employment ended. Because a retirement plan might not require a beneficiary to take a death benefit until five years after the participant's death, could a beneficiary designation that's amid a whole personnel file get scrapped before the retirement plan's administrator needs to look at that record?

I can shed some light on this on, having worked eight years for a major corporation in plan administration.

It's simple, you keep multiple files... one "master" HR file (kept in the HR dept) and one "master" benefits file (kept in the benefits dept); the benefits file is then subdivided as needed (we subdivided into health/welfare, 401(k) and pension). We would archive the subfolders as appropriate, keeping only the relevant portion in-house, like the accrued pension benefit that's not due to be paid out for another 25 years.

A smaller employer might be less rigorous by having just one "master" file but then subdividing into "personnel" and "benefits". Thus allowing the benefits portion to be retained longer for ERISA purposes.

[austin3515]

Most of my clients have a folder that they just dump stuff into, willie nillie... Smaller companies lack sophisticated HR operations so this type of filing is simply not going to exist at a small company.

[GMK]

We keep the medical file separate from the general employment file and pension file. Gotta be careful about access to medical information.

Of course, being a small company gives us flexibility that larger companies may not have.

[masteff]

Most of my clients have a folder that they just dump stuff into, willie nillie... Smaller companies lack sophisticated HR operations so this type of filing is simply not going to exist at a small company.

Thus highlighting "best practices" versus "what's practical".

It really comes down to the person who files. It's only short bit of work for a clerk to create a subfolder for each employee and start filing retirement related papers into it. They just have to be trained and understand why it's important (and not just extra work).

Of course, being a small company gives us flexibility that larger companies may not have.

Large companies just read the entire benefits department into the riot act. With the further expectation of don't look if you don't need to.

[BG5150]

First, does your service contract with your clients involve the collection and recording of beneficiary information?

Even if it doesn't, have you been providing the service in the past?

That said: how big is your firm and your case load? I once worked at a large provider, and x% of the enrollment forms and beneficiary designations were reviewed. (I'm not sure exactly what x% is, but we had thousands of plans and hundreds of thousands of participants in those plans.) In my current position, we have the ability to review all of them,. In fact, part of our procedure is to double-check the operations department's adding the people to the system.

I have heard of providers that allow people to add/change their beneficiaries online. However, I would expect them to notify the client of any changes.

I tend to agree that the client is ultimately responsible for collecting and retaining the forms.

[GMK]

Large companies just read the entire benefits department into the riot act. With the further expectation of don't look if you don't need to.

Understood.

I should have put one of these by my flippant remark.

[masteff]

I should have put one of these by my flippant remark.

D'oh! that's what happens when you're slow posting and someone gets in before you and you hurry to comment... the joke detector doesn't have time to register!

[Guest jims]

If you were in a paperless environment, people would be making beneficiary designations online. There would be edits so participants' choices added up to 100%, no less, no more. And if they didn't do it right, they couldn't save their choices and their designation would be incomplete. And if it was incomplete, the plan document would define what happens to the account at death.

[BG5150]

If you were in a paperless environment, people would be making beneficiary designations online. There would be edits so participants' choices added up to 100%, no less, no more. And if they didn't do it right, they couldn't save their choices and their designation would be incomplete. And if it was incomplete, the plan document would define what happens to the account at death.

In a paperless environment (which, to be honest, might not be cost-effective for some TPA's or asset holders), how do you obtain spousal consent if the participant is choosing someone else as primary beneficiary?

[Guest jims]

Agree on the cost effectiveness. Good question on the consent. The "paperless" environment does require paper for spousal consent. If consent is required, online messages alert participant that paper form with the elected beneficiary information is being created and must be returned with spousal consent. Message further states beneficiary designation is not effective until proper consent is received.

Generally not many paper forms, because consent only needed for married people that choose primary beneficiary to be something different than 100% spouse.