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Michael Riley, QKA®

The Importance of Maintaining Participant Beneficiary Forms

Michael Riley, QKA®

April 3rd, 2023 | Written by

The Importance of Maintaining Participant Beneficiary Forms

There have been a number of court cases in recent years concerning the payment of death benefits from qualified 401(k) plans. Often the circumstances leading to these cases could have been avoided if Plan Sponsors were a bit more diligent in procuring and maintaining current Participant Beneficiary Designation Forms. This is an area where sponsors are often too lax considering they may be held liable if assets are improperly distributed.

ERISA law requires spousal consent in order to designate anyone other than a spouse as a beneficiary, so particular care should be taken in updating forms when changes in marital status occur. Since a spouse must consent to the designation of a non-spousal beneficiary, a marriage essentially voids previous standing designations. Courts have affirmed that under a qualified plan an agreement made prior to marriage is not considered spousal consent because there is not a spousal relationship at that time, so only after the marriage can proper consent be given to designate a non-spousal beneficiary.

It’s also worth noting that, depending on the provisions of your document, a former spouse may be similarly entitled to a deceased Participant’s benefit if a new designation was not made following a divorce. Some documents may nullify this spousal default if a divorce occurs, but in either event, this is an instance where a new designation form is highly advisable.

Properly executed Beneficiary Forms are required in the event of a participant’s death and it’s an Employer’s responsibility to maintain them. The law contains some last-resort contingencies for when there are no forms on record but a simple and sure way to avoid the unnecessary liability of incomplete distribution documentation is to maintain current forms. If you are uncertain as to whether your Employee Beneficiary Forms are on file and current, periodic reviews are highly recommended.

We’re All In

Should you have any questions or comments, we’re here for you. If you have questions regarding these designations or just need the current forms, please don’t hesitate to contact Mike Riley or Melanie Denk by calling (410) 363-7211 or by filling out the contact form below.

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    This information is intended for educational purposes only. It is not intended to provide any investment advice or provide the basis for any investment decisions. You should consult your financial advisor prior to making any decision based on any specific information contained herein.

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    The Prosperity Consulting Group registered as a Registered Investment Advisor (RIA) in 2005. We have with a passion for providing clients with objective investment advice and wealth management solutions. Our purpose, coupled with our fiduciary commitment, is essential in helping clients achieve their financial goals. Our firm is dedicated to providing unparalleled financial planning and investment advice to individuals, families, businesses and institutions. We have identified key areas that are critical and integral to a client’s financial success. These planning areas encompass: Investment Planning & Management Retirement Planning Estate Planning Tax Planning Business Planning Insurance Planning Income Protection & Asset Preservation Education Planning 401(k) Planning
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