Def'n of beneficiary and spousal waiver - in ERISA?

[AlbanyConsultant]

Here's a sad tale for today...

A participant died last week, and the plan administrator called to review her beneficiary form with me - it lists her two sons as the co-beneficiaries.  "Oh," he said, "was her husband supposed to sign off on this somewhere?"

Uh-oh.

I explained how, without that signature (notarized), her balance goes to her husband (who is husband #2, not the father of the children - not clear if he was married to her when she was hired or not, or when we suggested they update the beneficiaries with each restatement... not that that matters at this point).  Now there are quite a few unhappy people.  I've got basic plan document language that explains how a beneficiary is determined, of course, but one of the lawyers wants proof "under law", whatever that means.

I thought that this would be defined in ERISA somewhere, but I don't see it.  The best I can find is 29 USC S.1002 (8) in "Definitions": 
 

Quote

(8) The term “beneficiary” means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.
...

<<the hyperlinked "beneficiary" links back to it's own definition>> - AC

But that's not very helpful.  Any suggestions?  I don't want to rack up [too much] more billable time to my client because of a bunch of pushy lawyers... Thanks.

[QDROphile]

The lawyer can pound sand.  The plan does what it does.  This will be an opportunity to see if the lawyer can figure out how to file a claim for benefits.

[ratherbereading]

If you are married, federal law says your spouse  is automatically the beneficiary of a 401k or other pension plan. If you want to name a beneficiary who is someone other than your spouse, your spouse must sign a waiver.

[CuseFan]

IRC Section 401(a)(11) spells that out.

[ratherbereading]

Also here:  Search for "Spouse" https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa-consumer

In most 401(k) plans and other defined contribution plans, the plan is written so different protections apply for surviving spouses. In general, in most defined contribution plans, if you should die before you receive your benefits, your surviving spouse will automatically receive them. If you wish to select a different beneficiary, your spouse must consent by signing a waiver, witnessed by a notary or plan representative.

 

[Peter Gulia]

If the plan is ERISA-governed, here's the statute on what a plan must, may, and may not provide:

ERISA section 205:

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

[Belgarath]

Thanks, Peter, for the citation.

I fully support the "spouse as automatic beneficiary unless spouse waives" law/concept, but when you see the actual statutory language and the whole QJSA/QPSA stuff, with numerous amendments, one may be tempted to agree with Mr. Bumble, "The law is a ass..."

As a layman, seems like it could have been made more sensible and streamlined. For example, it never made any sense to me why a profit sharing plan should be treated differently, for these purposes, than a pension plan.

On the other hand, if ERISA, the IRC, and all associated regulations/guidance were as simple as they ought to be, we'd all be out selling matchsticks or something, so I should keep my yap shut and not gripe!

 

[Peter Gulia]

When Congress wrote this in 1984, the staffers assumed defined-benefit pension plans and money-purchase pension plans would have annuity payouts.  And they were told that some individual-account plans that tax law called profit-sharing plans might not provide annuity payouts.  I think that's why the statute speaks with a variation for an individual-account plan that is not a pension plan with funding standards.

But it's easy to concur with your observation that a good writer with enough time (unlike the pace asked of Congress's staffers) could express the same resulting rules more clearly by stating them from concepts rather than consequences.

 

[ERISAAPPLE]

Does a prior spouse's waiver to permit the kids to be named as beneficiaries bind a subsequent spouse?  I have never looked at that issue.

[Mike Preston]

Nope.

[ERISAAPPLE]

I guess then if the prior spouse wants to make sure the kids get the death benefits, the prior spouse should get a QDRO (or two) and name the kids as alternate payees. 

[ERISAAPPLE]

The answer to your question Albany Consultant is in the DuPont case the Supreme Court made it clear you are required to follow the plan document.  Cite that case and give the attorney the plan document which says the spouse is required to be the beneficiary absent the proper waiver.  

[david rigby]

Don't forget the possible use of the 12-month rule in 401(a)(11)(D).  Of course, many plans don't include it.

[AlbanyConsultant]

Thanks, everyone!

 

Today's follow-up from the Plan Administrator... if the widower can be "made to see reason and go along with his wife's wishes", is there a way for him to sign a spousal consent waiver now?  I suppose that if everyone agrees, then who's going to fight it?  But I don't know if that's legally allowed.  I'm going to tell him that he has to ask an attorney.

[ERISAAPPLE]

Do they really know the wife's wishes?  If she completed the beneficiary form before she remarried, she might have changed her mind.  That, however, is a different matter.

I would think if the current spouse waives his right to the benefits and everyone agrees, you could distribute to the children.  It may not be legally, technically binding (though it might - the issue is whether a spouse can consent to a deceased participant's previously-named beneficiary). 

Technically, this beneficiary form is not valid.  If it cannot be made valid with the current spouse's consent (and I don't know either way if it can), the plan document controls and this goes to the spouse (assuming the 1-year rule does not apply, as Rigby pointed out).  If the current spouse disclaims (which works with the IRS), then the default beneficiary in the plan is the beneficiary.  Hopefully that will name the children.  

 

 

[Peter Gulia]

AlbanyConsultant, some retirement plans allow a beneficiary to disclaim or renounce a benefit; some don't allow this; and some say nothing, which might leave a question about whether a disclaimer is recognized to the plan administrator's construction or interpretation.

If a plan recognizes a disclaimer, typical conditions are that the disclaimer must be legally valid under the law of at least one relevant State, and further that the disclaimer must be one that meets Internal Revenue Code section 2518.

If New York law is relevant, this link is to the NY Estates, Powers and Trust Law provision:

http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO

I would not accept any State statute's recitation that following it results in a disclaimer effective under Internal Revenue Code section 2518.

http://uscode.house.gov/view.xhtml?req=(title:26

[AlbanyConsultant]

Thank you so much, Peter.  This is definitely landing firmly in "contact your attorney" territory.

[Luke Bailey]

Disclaimer is the way to go, as per Fiduciary Guidance Counsel above. Will add that under 25.2518-2(c), the disclaimer needs to be made within 9 months of date of death. Long story as to why the estate tax rule applicable, but it is.

[ERISAAPPLE]

There are two things going on with a disclaimer.  One is a disclaimer for tax purposes.  That is pretty easily done.  The second is a disclaimer with respect to the plan, which I like to think of more as a waiver.   With respect to the waiver, I like to have both claimants file a claim for benefits. I have the plan deny one and accept the other.  That makes it clear the statute of limitations has started.  I also like to get both parties to sign a settlement agreement in which the party waiving the benefit signs a clear release of all claims and the party receiving the benefit agrees to indemnify my client if the waiving party (or, e.g., his estate or power of attorney if he becomes incapacitated) later decides to change his mind.  At the end of the day (I don't like using that phrase, but I think it works here), I am not sure any of this technically works except for the statute of limitations.  But the alternative is for the client to follow the plan, and they usually don't want to do that in these situations.  If they wanted to follow the plan, they would not be coming to me.

[ERISAAPPLE]

On ‎3‎/‎27‎/‎2018 at 3:31 PM, Mike Preston said:

Nope.

Mike is there a case on this?  I could not find any guidance.  

[jpod]

Hard to imagine that there would ever be a court opinion on this issue because the statute is perfectly clear that the beneficiary absent the surviving spouse's consent is the surviving spouse.   

[RatherBeGolfing]

9 minutes ago, ERISAAPPLE said:

Mike is there a case on this?  I could not find any guidance.  

Just curious as to your thinking here.  If the spouse is the automatic beneficiary, why would the prior spouse have a say on benefits the new spouse is now the beneficiary of?

[Luke Bailey]

I understood that the question was that the new spouse is the beneficiary under the plan, but may be willing to bow out to let the decedent's children take, since they were likely intended. The way a disclaimer works, the person who would take disclaims, and then whoever would take after that person takes. The disclaimer cannot identify the person to whom the property goes (would be making a taxable gift), but can simply take him/herself out of equation in favor of person who would otherwise take under the instrument (plan or beneficiary designation).

[ERISAAPPLE]

3 hours ago, RatherBeGolfing said:

Just curious as to your thinking here.  If the spouse is the automatic beneficiary, why would the prior spouse have a say on benefits the new spouse is now the beneficiary of?

If a prior spouse waived in favor of, say, the children, it seems an argument could be made that is it.  The benefits go to the children.  A subsequent marriage doesn't automatically revoke the prior spouse's waiver, at least for benefits accrued prior to the subsequent marriage.  Clearly though, an argument can be made that the statute says the spouse is the beneficiary, and thus a subsequent marriage automatically controls over the prior spouse's waiver.  If the participant had been single and named the kids, I think that would be the result.  I just could not find any direct guidance on this.  I think the better answer is the old beneficiary form is no good upon a remarriage.  I just could not find any guidance on this, and was surprised I could not.

My hypothetical fact pattern is not an issue in the original post, and is not an issue for any of my clients, so it is not ripe.  I was just thinking out loud.    

[Luke Bailey]

ERISAAPPLE, the law is clear at this point that the plan's literal provisions prevail and, absent a disclaimer, prevail over any claims that might otherwise arise under state law. The "spouse" has benefits under the plan/ERISA as such and this defeats marital property or other state-law-based property rights in family members. See, e.g., the 2009 U.S. Supreme Court case of Kennedy v. Plan Administrator for the DuPont Savings & Investment Plan, No. 07-636.

[RatherBeGolfing]

1 hour ago, ERISAAPPLE said:

If a prior spouse waived in favor of, say, the children, it seems an argument could be made that is it.

You could argue it, but it would be incorrect..  Prior spouse was free to waive the his/her benefit in favor of the children.  If the participant does not change his beneficiary after divorce, the beneficiary designation may still be valid unless the plan document provides that a divorce nullifies the beneficiary designation.  In that case, the participant would submit a new beneficiary designation naming the kids (former spouse does not get to consent here because he/she is no longer the spouse)  or plan defaults would apply.

If the participant remarries, current spouse must consent to making a non-spouse the beneficiary.  That the former spouse consented doesn't matter.