Ambiguous Beneficiary Designation -- Time for Interpleader?

[Interested Party]

The situation:

• 401(k) plan participant executes an ambiguous beneficiary designation.  Account balance is $100,000
• Participant has two surviving brothers.  The beneficiary designation is unclear as to whether one brother receives all $100,000 or whether each brother receives $50,000.
• Employer asks:
  • What is the risk to the plan/employer if a distribution is made? (Obvious to me -- Potential litigation)
  • Does either brother have a right at this point to request and review/examine the beneficiary designation?
  • Can the employer refuse to provide the beneficiary designation to the brother(s) until requested during discovery (if there is litigation)?

Highly self-sufficient employer (i.e., reluctant to hire outside counsel) wants to know its options at this point.

• Make a distribution to one brother and hope everything works out?
• Make a distribution to both brothers equally and hope everything works out?
• Is there anything the employer can do to decrease the risk of one or both brothers initiating litigation?
  • Provide the brothers with the beneficiary designation form, ask if they're OK with splitting 50/50, and have both brothers execute an indemnification/settlement agreement before making the distributions?
  • Can the employer somehow use the ERISA claims procedures to its advantage here?
  • File an interpleader action with the court?

Is there anything else the employer should be thinking/doing to resolve this matter in the least expensive way possible?

Thanks for your thoughts.

[Peter Gulia]

What text in the beneficiary designation makes it ambiguous about whether one brother or both gets a benefit?

[CuseFan]

Same thought. If the form says "brothers" then it should go to both. If it said "brother" w/o specifying which, I don't see how that could justify paying one of them, and so a reasonable (and safest?) interpretation might be each brother.

I think the only way you could pay one brother and not the other is if the form specifically said brother X.

This also highlights a best practice where beneficiary designations require name, address, SS# and phone number of each beneficiary and contingent beneficiary, and is reviewed and accepted (or rejected until perfected) by the Plan Administrator.

[david rigby]

Also, look for something like "per stirpes".

[QDROphile]

I am not a big fan of jumping to interpleader. The plan fiduciary has an obligation to interpret plan terms and ancillary plan documentation such as beneficiary designations.

Any payment of plan benefits should be a result of a claim for benefits. If the plan fiduciary is uncertain about the identity of the beneficiary, but has identified potential beneficiaries, the plan fiduciary should invite every reasonable suspect to submit a claim for benefits. The plan fiduciary should then determine the claims, issue the determinations, and then allow claimants to follow the plan‘s claims procedures with any appeals that they believe are appropriate. The fiduciary will benefit from the arguments under the claims and the appeals. The fiduciary will then decide the appeals.

The plan’s claims procedures will provide that somewhere in the process. The claimant is entitled to examine plan documents, which will include the beneficiary designations.

Litigation may follow the decisions on appeal under the claims procedures. Interpleader may be considered at that point. 

[Peter Gulia]

Beyond QDROphile’s good teaching:

Consider also that an ERISA-governed plan’s fiduciary must act as a prudent and experienced fiduciary would act in deciding what expenses to incur, and how to allocate them among the plan’s participants and beneficiaries.

Interpleader is not without expense, sometimes substantial, because a court may require the interpleader plaintiff to develop fully the entire factual record, and to brief every issue, despite an assertion that the plan is a mere stakeholder.

If a judge finds that the administrator pursued the interpleader without first diligently following the plan’s claims procedure and carefully and thoroughly evaluating the claims, the court might deny the interpleader petition’s request that the administrator’s attorneys’ fees and expenses be charged against the interpleaded account.

And if a court finds an expense was unreasonable, what reasoning would support a fiduciary’s finding that the expense was prudent to incur and is prudent to charge against other participants’ and beneficiaries’ accounts?

This is not advice to anyone.

[Artie M]

I agree @QDROphile that the claims procedures should be used first.  As queried above:  what's ambiguous?    Another fact that has not been provided is whether a claim has been filed.  We never want to use an interpleader unless there is no other way to dispose of the claim(s).  Interpleader is usually appropriate where multiple parties assert competing rights, or the administrator genuinely cannot determine the beneficiary after a prudent review.  Interpleader isn't appropriate where no one has made a claim, the administrator simply has not finished interpreting the plan, or the administrator is avoiding making a fiduciary determination that the plan document clearly requires.  In our experience, judges expect the administrators to interpret the plan, review beneficiary forms, review marriage/divorce records, apply the plan terms.  Only when the administrator faces a real risk of multiple liability or genuinely irreconcilable claims should interpleader come into play.  

[fmsinc]

I cannot cite chapter and verse like you fine folks, but my thinking is as follows: 

Assuming that the Plan Administrator is not required to determine whether or not the beneficiary designation is or is not ambiguous until the happening of an "event" such as the death of the Participant (when it is then too late to address it with the now deceased Participant), and if the Plan Administrator now decides post-mortem that the beneficiary designation is in fact ambiguous, would not the Plan's Order or Precedence kick in at that point, or if the Plan does not have an Order of Precedence, wouldn't the state law with respect to testate or intestate distribution then apply?  

Once the Plan Administrator has determined that the beneficiary designation is ambiguous, I don't think the brothers can make an agreement that would supersede the Order of Precedence or the applicable state law.  In other words, is the beneficiary designation is ambiguous it cannot form the basis for any distribution at all. 

I would must humbly suggest that the Plan has no good options.  It's too late to correct what I see as negligence of the Plan to review beneficiary designations at a time when an ambiguity can be addressed.  I would not be surprised if ERISA or the Plan document would reject my common sense view of the matter, but in my humble opinion the Plan runs the risk of paying twice.  That's why we have interpleader.  Too bad if the Plan Sponsor doesn't want to incur legal fees. 

On the other hand, we have recent case law dealing with substantial compliance,   Packaging Corporation of America Thrift Plan for Hourly Employees v.Langdon v. Copiskey,
166 F.4th 645 (2026) that you can find at -
https://scholar.google.com/scholar_case?case=1182260352496528209&q=packaging+corporation+of+america&hl=en&as_sdt=4,112,127    

See attached Memo I recently prepared. Does it apply to this fact pattern.  Only the Shadow knows. A WORD ABOUT SUBSTANTIAL COMPLIANCE.pdf

David

[Artie M]

@fmsinc  Typically a plan will provide that if a beneficiary fails to file a beneficiary designation or the beneficiary designation is determined to be "invalid" or "ineffective," the plan's default rules will decide the beneficiary.  The plan would normally would not look to state law to determine the beneficiary (unless the terms of the plan specifically state to do so).  Right, an agreement between the brothers would not normally supersede the order of precedence in the plan's default provisions. 

Also, I guess I cannot say that any ambiguity cannot form the basis of a distribution.  As someone above stated.  If a properly filed designation names "my brother" and there are two brothers, seems like some or all of it should go to at least one of the brothers... or did the participant accidentally leave off an "s" on his designation.  Under this designation, if the plan's default rules say first to surviving spouse, if none, to children, if none, to estate, and there is no spouse but two children.  Well neither of the two children are a brother.  Here, if a settlement can be reached where the two brothers agree to split the account funds and the two children are okay with that then we would advise that the plan get a release from the brothers and children and, if they execute the releases, pay out 50/50 to the brothers.  Here, I think it is possible that the agreement from the brothers could supersede the plan's default provision because it seems the intent is not for the kids to get the money but a brother would.  Also, there was substantial compliance as we assumed the designation was properly filed.

As far as costs go, not saying that it would happen but it is possible the fees could be paid through the interpleaded funds (though we always advise against interpleading the funds but only interpleading the parties, unless the court requires it, and we always note that fees can be requested but most likely not going to be paid). In ERISA cases, courts generally do not like to award fees from a participant's account but they might if there are truly competing adverse claimants, administrator completely neutral and acted promptly, dispute involves difficult factual or legal issues, and plan expressly allows payment of account specific legal expenses or extraordinary administrative expenses.  They are less likely to award fees if the administrator created the ambiguity, they view there was poor administration, fees are substantial relative to interpleaded funds, and the court believes the determination of the beneficiary under the facts should have been a routine plan administrative decision.