Puzzled over 401(k) Beneficiary Rights

[Guest cole stevenson]

I'm looking for thoughts on the following beneficiary situation under a 401(k) plan:

While married, participant names spouse as primary and sole beneficiary on plan's beneficiary designation form. A few years later the marriage ends with a legal divorce. The divorce decree has general language that neither spouse will make claim to any portion of the other's retirement pension or savings plan benefits. The aforementioned beneficiary designation is never updated by the participant. Then, the participant dies.

Does the beneficiary form prevail? Or does the language of the divorce decree have an effect?

What if, instead of dying, the participant had simply re-married? What effect, if any, does this have on the "old" beneficiary designation that still shows his then ex-spouse as primary and sole beneficiary?

Thanks in advance for any thoughts or reactions.

Cole

[LCARUSI]

If the participant had remarried, the new spouse would become beneficiary regardless of whether or not the employee had made a new beneficiary designation.

Since he or she presumably did not remarry, I would say the previous designation of the prior spouse would still be valid and would override the divorce decree.

[MoJo]

It may get a little more complicated.... I think it may be somewhat dependent on state law. Some states provide that all beneficiary designations are voided, to the extent they name a spouse, upon divorce. I know of some court cases that have upheld this position with repsect to ERISA covered plans - although I question whether there is a preemption issue.....

[RCK]

I agree with LCARUSI.

I would clarify in that I would not say that the beneficiary form is overriding the Divorce Decree. The participant is choosing to make the former spouse the bneeficiary--the former spouse is not claiming a portion of the retirement benefits. So the Divorce Decree is still valid.

[Kirk Maldonado]

There have been several cases involving this issue in the past few years. Also, some states have statutes expressly dealing with this situation. Whether those statutes are preempted by ERISA does not seem to have been definitely answered yet.

[MoJo]

I agree Kirk - and since the risk is that someone may have to pay twice, its worth trying to get a definintive answer in the jurisdiction. If its a significant amount, it may be advisable to seek a declaratory judgement from a court prior to paying the benefit.

[Erik Read]

Following in logic - if they're divorced (no mention of other heirs)and their was an equity split in the DRO. Then individual dies with no named heir and the assets then become those of the estate (most documents have laguage to such) - would the ex-spouse be entitled to the estate or would it pass to the State of residence?

[MoJo]

It would pass per the state's Statute of Descent and Distirbution - which will specify where heirless estates go. If there are no possible heirs, it may escheat to the state.

[Kirk Maldonado]

MoJo:

I seem to recall that there is conflicting authority as to whether or not state escheat laws are preempted by ERISA.

Couldn't this entire problem be avoided by careful plan drafting? For example, couldn't the plan document state that if a married participant designates his spouse as the beneficiary, then that designation is automatically revoked if they get divorced?

[MoJo]

Well, Kirk, that may be an option - although I've not seen it done. As far as escheating goes - I don't think plan assets will ever escheat to the state (although some states may disagree with that!). My point is that once paid to the estate of a deceased participant, then the estate assets may escheat.