"Spouse is beneficiary"..."Prove it!"

[AlbanyConsultant]

I have run into a situation where the employee became a participant while unmarried, and selected his mother as his beneficiary (awww, how nice).  He has recently married.  We all know that this means that his spouse is now his primary beneficiary... but where is that stated in the law?  The mother is reluctant to no longer be the beneficiary, and the participant, who could choose to solve this by just completing a new form listing his wife, is not doing so.

This is a 403(b) plan - I don't think that matters, except that the document language isn't pre-approved and therefore maybe isn't as 'tight' as I'd like it to be.  It says that if there is no designation in effect, the spouse is the default beneficiary unless he/she waives that right.  But it doesn't specifically say that becoming the spouse supersedes other beneficiary forms in effect.  And it's not subject to QJ&SA for anything (which I think rules out IRC 411 and 417).  So where in the 

Thanks.

[Peter Gulia]

If the plan your client interprets is an ERISA-governed plan:

 

ERISA § 404(a)(1)(D) requires a plan’s administrator (and other fiduciaries) to “discharge his duties with respect to a plan . . . in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [meaning title I of ERISA] and title IV.”

 

If an ERISA-governed plan’s documents omit a provision that ERISA requires, a court would, and a fiduciary should, interpret the plan as if it includes the required provision.  For example, if a plan’s document does not provide for a survivor annuity or other death benefit required by ERISA § 205, a court will supply the missing provision.

 

At least two court decisions support this reasoning:

 

Lefkowitz v. Arcadia Trading Co. Ltd. Benefit Pension Plan, 996 F.2d 600, 604 (2d Cir. 1993) (for a defined-benefit pension plan that omitted to provide for a qualified preretirement survivor annuity, the court interpreted the plan as providing a QPSA.);

 

Gallagher v. Park West Bank & Trust Co., 921 F. Supp. 867 (D. Mass. 1996) (for an individual-account retirement plan that omitted to state any qualified preretirement survivor annuity or other survivor provision, the court interpreted the plan as providing a 50% qualified preretirement survivor annuity).

 

ERISA § 205(b)(1)(C) applies § 205 to an individual-account plan unless, among other conditions, “such plan provides that the participant's nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant's surviving spouse[.]”  ERISA § 205(b)(1)(C)(i).

 

For a reprinting of ERISA § 205 (unofficially compiled as 29 U.S.C. § 1055), see:

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title29-section1055&num=0&edition=prelim

 

 

[Larry Starr]

Almost definitely, the plan language made the spouse the beneficiary upon marriage.  Of course, the plan document needs to be reviewed, but based on your comments, I'd bet that's what it does.  If the spouse has NOT waived her rights under this plan, then she is the beneficiary REGARDLESS of what a beneficiary designation says.  It would be the same as if he filled out a new beneficiary designation listing the mother without the spouse's written consent. While Peter's commentary is certainly correct, I'm not sure you have to look outside the plan document which appears to say the spouse is the beneficiary unless she waives her rights.  No waiver; no mother!

Larry.

[david rigby]

16 hours ago, AlbanyConsultant said:

The mother is reluctant to no longer be the beneficiary, and the participant, who could choose to solve this by just completing a new form listing his wife, is not doing so.

Most people I know are reluctant to give bad news to Mom.  As described above, the participant should be off the hook, because he can now tell Mom: "there is no choice; the plan rules are the plan rules."

 

[jpod]

It's usually very good to be proactive, but is the participant very sick?  If not, why are you spending more than 5 minutes thinking about this?   On the other hand, if the document doesn't say what it is supposed to say about the spouse automatically being the 100% beneficiary, you should think about amending the document.

[Bird]

Quote

Most people I know are reluctant to give bad news to Mom.  As described above, the participant should be off the hook, because he can now tell Mom: "there is no choice; the plan rules are the plan rules."

Unless he adds "...unless my wife is willing to waive her rights and let you be beneficiary."  Then he can start a whole new sh*tstorm.

[MoJo]

Well, I just have to say this - but 1) you've told the participant that what will happen if he dies without a revised beneficiary form; and 2) you are under no obligation to "prove" anything.  If he wants a "legal" opinion, he can go hire his own attorney.  Which leads to finally 3) he's an idiot if he thinks doing nothing because you can't "prove it" actually means anything - because the bene form only becomes effective when he dies - AND THEN HE'LL HAVE NO SAY IN THE MATTER, AND MOM GET'S NOTHING ANYHOW.

Sorry for the harsh tone - but I've spent the last couple of years dealing with people who do things because they don't trust what you've told them (like they don't get NUA tax treatment for an in-service distribution under age 59-1/2 and then they go and take $800,000 worth of stock anyway - and COMPLAIN, or the tax consequences of a defaulted loan are not at all contingent on whether or not they received a "demand" letter sometime in the TWO YEARS since they stopped making payments - stuff like that..

Participants either believe you,. or they suffer the consequences..  I don't waste much time on "convincing" or proof anymore.

[RatherBeGolfing]

56 minutes ago, Larry Starr said:

Almost definitely, the plan language made the spouse the beneficiary upon marriage.  Of course, the plan document needs to be reviewed, but based on your comments, I'd bet that's what it does.  If the spouse has NOT waived her rights under this plan, then she is the beneficiary REGARDLESS of what a beneficiary designation says.  It would be the same as if he filled out a new beneficiary designation listing the mother without the spouse's written consent. While Peter's commentary is certainly correct, I'm not sure you have to look outside the plan document which appears to say the spouse is the beneficiary unless she waives her rights.  No waiver; no mother!

Larry.

No panda Larry?

[My 2 cents]

I may be piling on here, and in commenting at all, I am presuming that the rules for 403(b) plans (on which I do not work) concerning all existing beneficiary designations automatically becoming invalid upon marriage are the same. 

Does the plan even allow the participant (with spousal consent) to redesignate his mother as beneficiary? 

As a final thought:  We all think we know what the mother wants.  What does the participant want?  What does the spouse want?  Isn't the participant's primary duty, having married, to provide for his spouse and not his mother?  Are we to assume that his mother does not approve of the marriage to this spouse (or even to his having married at all instead of staying home and devoting himself to his mother)?  Can this marriage be saved?

[david rigby]

2 hours ago, Larry Starr said:

Almost definitely ...

I'm hoping this oxymoronic phrase dies as quickly as possible.

[AlbanyConsultant]

Thanks, everyone.  I know this was an exercise in stupidity - I feel your pain, MoJo! - but I'm dealing with a client who takes everything literally confronted with a situation that is being twisted by the mother.  I was looking for a clear "spouse is always the beneficiary, and this supersedes any previous" to make it perfectly clear.

 

I guess I just need to raise my billable rate for these kinds of questions. :o)

[MoJo]

6 hours ago, AlbanyConsultant said:

I guess I just need to raise my billable rate for these kinds of questions. :o)

No doubt!  But then again, there are some things that you can never be compensated enough for....

[My 2 cents]

Has it been established that the plan is silent/ambiguous on this point?  If you can point to anything specific in the plan, that ought to settle it.

Then, of course, assuming that the plan allows the participant, with spousal consent, to change to a non-spouse beneficiary, for the mother to go back to being the beneficiary would merely require that the participant and the spouse so elect.

[tymesup]

I have some sympathy for mom. Yesterday, she was the Beneficiary, which was worth something. Today, she is not the Beneficiary, which is worth less. Her benefits were cut back, without notice or consent.

I have some sympathy for the participant. Did anyone inform him of the consequences of the marriage before he said I do?

For this particular plan, do they have to be married for a year before the wife is considered the Spouse? If so, the participant can drag out the misery.

I hope the feds don't decide we need to protect the Beneficiary's accrued benefit. Imagine tracking DC accounts and/or DB accrued benefits, for multiple Beneficiary designations and multiple dates.

[MoJo]

4 minutes ago, tymesup said:

I have some sympathy for mom. Yesterday, she was the Beneficiary, which was worth something. Today, she is not the Beneficiary, which is worth less. Her benefits were cut back, without notice or consent.

I have some sympathy for the participant. Did anyone inform him of the consequences of the marriage before he said I do?

For this particular plan, do they have to be married for a year before the wife is considered the Spouse? If so, the participant can drag out the misery.

I hope the feds don't decide we need to protect the Beneficiary's accrued benefit. Imagine tracking DC accounts and/or DB accrued benefits, for multiple Beneficiary designations and multiple dates.

Sympathy for the mom?  OK, maybe - but her "interest" in the plan (before the marriage) ONLY becomes real if her son dies - and she has, in fact, gained a "daughter in-law."  Good or bad for mom - who knows, but apparently the son thought this was a step in the right direction.

I see no possibility of the Feds "protecting" beneficiary rights (pre-death) - keep in mind, you DON'T need to name a beneficiary at all and can leave it all to the plan/code/probate to sort it all out (which I NEVER recommend).  Beneficiary rights are "contingent."

[My 2 cents]

Agree with MoJo - absolutely no chance that the participant's mother has any rights subject to protection.  In fact, public policy undoubtedly leans in the direction of encouraging marriages and providing such protection as is appropriate for the spouse.

Tymesup expresses sympathy for the participant, who (Tymesup apparently thinks) went blindly into the marriage without warning.  I have two comments on that:

1.  Western literature offers all the "warning" anyone could need about matrimony (including Henny Youngman as one limited source of western literature).  Doesn't western literature actually offer more warnings about in-laws than spouses?  I wonder whether the participant's spouse is more entitled to sympathy.  Were there warning signs about her mother-in-law-to-be, who appears to begrudge the spouse the usual and customary rights to protection in the event of the participant's death? 

2,  Shouldn't one offer congratulations and not sympathy to someone who marries?

[MoJo]

3 minutes ago, My 2 cents said:

1.  Western literature offers all the "warning" anyone could need about matrimony (including Henny Youngman as one limited source of western literature).

"...take my wife...  ...  ...  please!" - Henny Youngman.

Couldn't resist....

[AlbanyConsultant]

The plan is unfortunately silent about this exact situation...

 

Quote

 

3.4.1  Designation of Beneficiaries.  Each Participant shall have the right to designate a Beneficiary or Beneficiaries and contingent or successive Beneficiaries to receive any benefits provided by this Plan that become payable upon the Participant's death. Each designation shall be made according to the procedures established by the Vendor for each Individual Agreement. The Participant may change their Beneficiary designation at any time or times by the filing a new designation with the Plan Administrator or Vendor. The most recent designation shall govern.

In the absence of a designation, the Designated Beneficiary shall be the surviving spouse of the Participant, unless such surviving spouse consents in writing to an alternate designation and the terms of such consent acknowledge the effect of such alternate designation and the consent is witnessed by a representative of the Plan or by a notary public.  The designation of a Beneficiary other than the spouse of the Participant or an optional form of benefit with the consent of such spouse may not be changed without the consent of such spouse, and any consent must acknowledge the specific non-spouse Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, unless the spouse expressly permits designations by the Participant without any further spousal consent.  Regardless of any prior designation, a Participant, at any time, may designate his spouse as Beneficiary, and with respect to Accounts providing annuities, may also designate the form of benefit as a Qualified Joint and Survivor Annuity.

If a Participant dies without having a Beneficiary designation on file, or if all of the 
Participant's Designated Beneficiaries predecease him, his Beneficiary shall be his surviving spouse, or if none, his surviving children, equally, or if none, such other heirs, or the executor or administrator of his estate, as the Plan Administrator shall select.

3.4.2  Spousal Consent.  Any consent by a spouse obtained under this provision (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse.  A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights.  A Participant may revoke a prior waiver without the consent of the spouse at any time prior to the commencement of benefits.  The number of revocations shall not be limited.  No consent obtained under this provision shall be valid unless the Participant has received notice as provided in Subsection 2.5.7(d).

 

 

It is very clear that if you don't already have a beneficiary, then the spouse becomes the beneficiary (first sentence in second paragraph of 3.4.1), but that's not what I have here.  I went back to the doc provider, and their response was "...but it does not appear that the document specifically addresses this."

 

Thanks again.

[My 2 cents]

Genesis 2:24 says (to use the King James version as representative of the various available translations) "Therefore shall a man leave his father and his mother, and shall cleave unto his wife...").

The right thing to do, if it is not automatic under the plan, would be for the participant to stand up and explicitly designate his wife as his plan beneficiary.  For his mother to object would be selfish and self-centered on her part.  While it is appropriate for him to honor and respect his mother, the participant's primary obligation is now to his wife.

[RatherBeGolfing]

10 minutes ago, AlbanyConsultant said:

The designation of a Beneficiary other than the spouse of the Participant or an optional form of benefit with the consent of such spouse may not be changed without the consent of such spouse, and any consent must acknowledge the specific non-spouse Beneficiary, including any class of Beneficiaries or any contingent Beneficiaries, unless the spouse expressly permits designations by the Participant without any further spousal consent.

My emphasis in bold.  

Wife must consent to the mother as beneficiary.

I'm not sure I see the controversy

[My 2 cents]

The question comes down to whether the plan or the rules applicable to 403(b) plans automatically render all existing beneficiary designations invalid upon the marriage of the participant (the way they seem to in plans qualified under 401).  If that were the case, and the intention of the parties were for the participant's mother to be the beneficiary, it would require the spouse's consent to make it happen.

The controversy as I see it from my distant vantage point is that it is the spouse who, absent unusual circumstances, ought to be the beneficiary, not the participant's mother.

 

[david rigby]

Reading between the lines of Albany Consultant's second post, it seems the "client" and the participant might be identical.  If this is a "family business", the mother may feel she is part of that, whether or not she is/was an employee. 

Nevertheless, this problem does not belong to the Plan, or to the PA. or to Albany Consultant, but is a conversation between the participant and his mother. 

[My 2 cents]

28 minutes ago, david rigby said:

Reading between the lines of Albany Consultant's second post, it seems the "client" and the participant might be identical.  If this is a "family business", the mother may feel she is part of that, whether or not she is/was an employee. 

Nevertheless, this problem does not belong to the Plan, or to the PA. or to Albany Consultant, but is a conversation between the participant and his mother. 

...and wife!!!

[Peter Gulia]

AlbanyConsultant, I too read the passages you quote as failing to state, at least by themselves, provisions that would meet ERISA § 205.

 

Understand that even a document the Internal Revenue Service approved under the IRS’s program for IRC § 403(b) preapproved documents could have such a weakness and it would not mean the IRS’s reviewer missed a point.  The IRS’s review does not include ERISA § 205.

 

If you still have a task for advising your client, you might check into whether the plan is ERISA-governed or not.

 

If ERISA § 205 governs the plan, a court would, and a fiduciary should, construe or interpret the plan to state provisions that comport with that section.

 

[Larry Starr]

I'd say plan is not well written and you should find new documents.

Here is what is in our documents:

(B) Qualified Preretirement Survivor Annuity (QPSA). If a married Participant dies prior to his/her Annuity Starting Date, the Plan Administrator will direct the Vendor to distribute a portion of the Participant's Vested Account Balance to the Participant's surviving spouse in the form of a QPSA, unless the Participant has a valid waiver election in effect or unless the Participant and his/her spouse were not married throughout the one year period ending on the date of the Participant's death.
 

Makes it clear that the mother ain't the bene!