Plan Responsibility for Beneficiary Designation

[khn]

I know plan documents govern the beneficiary designation of a 401k, but is there any liability to an employer for not making sure all participants have a named beneficiary on file?

[Lou S.]

The Plan document usual specifies an order of beneficiaries if participants do not submit one. I do not believe an Employer or Plan Administrator has an legal duty to make sure participants submit beneficiary designation forms.

[My 2 cents]

Seems to me that making it known that participants can name beneficiaries and making the forms known and available ought to be considered fulfilling their obligations. What else are they supposed to do, decide who the participant wants the beneficiary to be and fill out the forms themselves for the participant to sign? Perhaps a blast email or posting every couple of years might be helpful, but the employees are (one presumes) adults and therefore ought to be considered responsible for taking care of such things.

[GMK]

I agree that there is no employer obligation or liability. It's up to participants to designate their beneficiaries.

We do, however, encourage the filing of beneficiary designation forms with a reminder every 5 years or so, mainly to make it as simple and direct as possible to identify beneficiaries and complete distributions when the time comes without the folderol of having to figure out who the default beneficiaries are. Some participants appreciate the reminder and file updates.

[masteff]

For the sake of perspective... when the company gets big enough (I was in corporate benefits with 4 plans and 4500 active employees), you start to be a bit careful about making broadcast announcements about updating BDFs because you can create a lot of work for yourself pulling files to verify existing designations (assuming you're still on paper rather than electronic).

You can still use general announcements, just target your language a bit so people are more selective ("if you got married, divorced, had a loved one pass away, had a child or hate your new sister-in-law, now is a good time to complete a new BDF"). Oh, and, "if in doubt if you need to change your BDF, take a few minutes to do one now". Filing BDF's is faster and less frustrating than looking them up and returning phone calls to very many people.

[GMK]

^ good advice, for sure, even for small companies.

[Peter Gulia]

What do think about the idea of displaying on every quarter's account statement the name that is in plan's records as the participant's most recently named beneficiary? Do you like this? Why or why not?

[GMK]

^not a fan. Generally, only the plan needs the beneficiary records, and usually the plan is not the generator of the statements. So it's added information for the TPA or whomever to maintain and for the plan to update for no useful-to-the-plan purpose. And some participants prefer to keep their beneficiary choices more private.

Once a year is often enough to remind people that they are going to die. Every 5 years is enough for most people (and using wording like masteff suggests, above). The time when participants seem to appreciate a reminder about beneficiaries is when they report a relevant change in their life (marriage, divorce, etc.).

And if participants won't file a beneficiary designation, you can't stop them. (I think Yogi Berra said that.)

[My 2 cents]

Why wouldn't it be appropriate for "the TPA or whomever" to maintain beneficiary information? Wouldn't that expedite death benefit processing?

[GMK]

Others probably have different experiences, but our TPA's and whomever don't want the beneficiary information. Distributions to beneficiaries are processed in accordance with the distribution authorizations that we (plan administrator) issue after we do our fiduciary thing to determine who the beneficiaries are. And there's not been anything to expedite. There's been plenty of time to prepare for the distribution while we wait for the death certificate to be issued.

But others may see it differently.

[david rigby]

Why wouldn't it be appropriate for "the TPA or whomever" to maintain beneficiary information? Wouldn't that expedite death benefit processing?

Yikes! This seems like an HR function to me. Most TPAs don't want to be part of the HR relationship.

[Peter Gulia]

GMK, thank you for your helpful ideas.

The situation I'm thinking about is one for which the plan's administrator has contracted with its recordkeeper for the recordkeeper to receive, process, and keep all beneficiary designations. The employer/administrator does not have any beneficiary-designation records beyond those kept at the recordkeeper. The recordkeeper also will print the beneficiary information on participants' quarterly account statements without an incremental fee.

Do these facts change your thinking about whether it's a good or bad idea to display the beneficiary information on the statements?

[GMK]

I can imagine that some participants would prefer to keep their beneficiary designations secret, or at least not have them printed on documents (that others might see) every quarter or annually or at all. I think that a masteff-like reminder on the account statements would be a good idea, but I am not in favor of printing names.

And I would be uneasy if we did not have our own file of beneficiary designation records, rather than relying completely on the recordkeeper's files, but that's just me.

[masteff]

I see two hurdles to whether designations could be shown on statements. 1) Who has the data (as GMK and My2Cents discuss above)? and 2) How do they have the data: paper or electronic? My opinion is that it's only realistic from a technical standpoint if the recordkeeper/TPA is collecting the designations electronically.

I would have strong misgivings about it being transcribed from paper to electronic. But then again, electronic collection creates problems re: spousal consent as needed. An electronic designation would not be effective until a paper consent was filed (is there any guidance or case law on gathering consent electronically? I see it as potentially ripe for fraud).

I don't have a problem w/ designations on the statement although I see GMK's position. A personal example is the 5498s I received recently on my IRAs showed my current designation (which they collected electronically from me).

[jpod]

Yogi also said (among other things):

"We're lost, but we're making good time!"

"90% of this game is half mental."

"It gets late early this time of year" (i.e., September-October).

[BG5150]

"Nobody goes there any more. It's too crowded."

"Eighty percent of the shots that come up short don't go in."

"When you come to a fork in the road, take it."

"Pair up in threes."

[Peter Gulia]

Thank you, all, for the further perspectives.

If an account statement is mailed in a sealed envelope addressed only to the participant, does that resolve a privacy concern about whatever is printed on the statement?

[jpod]

I believe that was "80% of the putts . . .," but it's close enough.

Also, don't forget: "If you don't go to other people's funerals they won't come to yours."

[GMK]

If an account statement is mailed in a sealed envelope addressed only to the participant, does that resolve a privacy concern about whatever is printed on the statement?

Just guessing, but ...

I think that about 3%-5% of our people would object to divulging their beneficiaries in print,

another 5%-7% would think it's a good idea,

and the other 95% wouldn't care either way.

"The future ain't what it used to be."

enjoy:

http://www.brainyquote.com/quotes/authors/y/yogi_berra.html