Beneficiary changed before marriage

A participant in our ESOP got re-married in July and, with intention, sent in a new beneficiary designation form listing an adult child named as 100% primary in June. 

Now that they are married, does the date on the beneficiary form trump the spousal rights under ERISA?

Check the plan document, and in particular, check its definition of spouse.  Some documents say the couple has to be married for one year before the newly-wedded spouse is recognized by the plan.  Some documents are explicit in saying the date of the marriage automatically considers the spouse as the default beneficiary overriding any other existing elections.

The plan-design choice Paul mentions is based on ERISA § 205(f).

http://uscode.house.gov/view.xhtml?req=(title:29%20section:1055%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1055)&f=treesort&edition=prelim&num=0&jumpTo=true

Thanks, I think I have it.

Our plan has the one year clause, so the adult child will remain his primary beneficiary for one year after marriage then revert to the new spouse unless spousal consent is obtained. 

2 hours ago, Josh said:

Our plan has the one year clause, so the adult child will remain his primary beneficiary for one year after marriage then revert to the new spouse unless spousal consent is obtained. 

Do you think the participant understands this?  (In my observation, an emphatic NO.)  If you think the answer is NO, then there may be some administrative responsibility to inform the participant.

37 minutes ago, david rigby said:

administrative responsibility to inform the participant

That responsibility is satisfied through these requirements being spelled out in the SPD, which we all know every participant thoroughly reads, understands and remembers - LOL! The legal responsibility is satisfied, but it would be a good employee relations practice to remind such participant of those provisions.

Not exactly on topic, but I went back and took a look at ERISA § 205(f), referred to by PG.  Click on PG's link. You take a look at the language of this section, the references to amendments, notes and so on.  Does it make you want to cry?  I think it should.  Or laugh?  Maybe that would be better.

Question for Peter Gulia:  I should probably know this.  A QJSA and QPSA are mandated with respect to a defined benefit plan.  As I correct that these provisions of 29 U.S. Code § 1055(a) are not mandatory with respect to an ESOP, but may be adopted by the Plan documents?  In the 36 years I have been preparing QDROs I have never came across this issue. 

I found this language at Pub. 6301 attached.  

"The law provides a special rule in the case of a money purchase ESOP. The portion of a participant’s accrued benefit under such a plan that is subject to section 409(h) (“put options”) is treated as though it were provided under a defined contribution plan not subject to section 412. Thus, if the requirements in a), b), and c), above, are met, the 409(h) part of the participant’s benefit in the money purchase ESOP is exempt from the survivor annuity requirements.
401(a)(11) 1.401(a)-20 Q&A 3"

So now I'm guessing that there are different types of ESOP plans and different defaults and rules for each as they may pertain to survivor annuity elections, and options for adopting language in the Plan that can change the default - or not.  

Any words of wisdom would be appreciated.  

David

p6391 (5).pdf

As ERISA § 205(b)(1)(C) provides, an individual-account retirement plan may provide, instead of § 205(a)’s survivor-annuity regime, that on a participant’s death the vested account is distributable to the participant’s surviving spouse. If the plan so provides, the participant’s surviving spouse is the beneficiary, absent a participant’s qualified election with the spouse’s consent. Many individual-account plans provide such a 100% death benefit.

Kinds of plans that may avoid the QJSA/QPSA regime include plans that tax law classifies as a profit-sharing plan (including one that includes a § 401(k) arrangement) or as a stock-bonus plan (including one with employee stock ownership provisions).

Many of these plans not only lack a QJSA/QPSA but also have no provision for any annuity. Some expressly preclude an annuity.

Beyond ERISA’s title I, the Internal Revenue Code sometimes requires a QJSA/QPSA regime as a condition for a desired tax treatment. That applies regarding a plan tax law classifies as a money-purchase plan, including a target-benefit plan. But a § 409(h) part of a benefit under a money-purchase employee stock ownership plan may omit a QJSA/QPSA for that part.

Even if neither ERISA § 205 nor anything in the Internal Revenue Code requires the QJSA/QPSA regime, a plan’s governing documents might provide it.

As many BenefitsLink neighbors say, Read The Fabulous Document. And if the plan is ERISA-governed, read also ERISA’s title I. Why? Some documents fail to meet ERISA § 205.

If a plan’s governing documents lack a QJSA/QPSA regime when ERISA § 205 commands it, a court should interpret the plan as if it states a statute-commanded provision. See 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% QPSA).

A governmental plan or a church plan (if the church plan has not elected to be ERISA-governed) often provide differently than either ERISA § 205 regime.

For example, many New York governmental plans do not provide a protection for a participant’s surviving spouse. (And New York’s elective-share law results in nothing for a surviving spouse if the participant’s annuity or account is fully paid by the participant’s death.)

Some church plans do not permit a participant to elect against a survivor annuity, even with the spouse’s consent.

Thank you Peter. I'm glad I don't have your job.  By comparison my job is easy.  I confirm that the Plan is ERISA qualified (or qualified under some other Federal, state, county, municipal or international organization law) and that benefits can be transferred to the Alternate Payee.  I get my hands on the Plan's SPD and their "QDRO package" per ERISA Section 206(d)(3)(G)(ii).  And I do my drafting.  I live in an "I can" or "I can't" environment and don't often have to get into the statutory weeds to resolve a can/can't dilemma.  None of my clients are ever going to pay the cost of legal research let alone a court battle. 

Having said that, there was that one time where my client was accused, but not convicted, of stealing from her employer, Bell Atlantic.  They decided that it would be okay to recoup their losses by refusing to distribute her Cash Balance plan benefits to her.  We won the case, our client got her money (including market increases if I remember correctly) and Bell Atlantic paid about $35,000 in legal fees to me and my co-counsel, Wendy Widmann.  See attached Memo. 

Thanks and best regards, 

David 

Bowersox v. Bell Atlantic.pdf