Write This Down … Participants Have to Follow the Plan’s Beneficiary Designation Procedures
The principles governing how ERISA plans determine a participant’s beneficiary haven’t changed much since the country singer George Strait sang “Write this down” in 1999. In short, the participant has to write it down … on the forms and following the procedures established by the plan.
Recently we’ve seen several examples of family members of deceased employees who are surprised by the plan’s record of who was designated as beneficiary. They have tried to argue that the deceased employee’s will should be allowed to designate a beneficiary, or that the plan should look to state laws regarding estates. However, the courts have clearly established that those extraneous sources do not affect the plan’s process. (Most famous are the U.S. Supreme Court’s 2001 Egelhoff decision, and its 2009 Kennedy v. DuPont decision.)
The only thing that matters is what the participant wrote down. If the participant was clear and followed the plan’s procedures for naming a beneficiary, the fiduciaries of the plan are bound by ERISA to follow that result.
Of course, it goes without saying that the fiduciaries must first determine what the plan’s procedures are. The plan language may have requirements or exceptions. For example, some plans will provide that a divorce automatically revokes a beneficiary designation that was previously filed. Any specific rules or exceptions found in the plan language must be followed scrupulously by the fiduciaries.
And in some cases, it might be difficult to determine whether the participant properly followed the plan’s procedures. For example, the participant may have failed to sign a form, or may have filled it out incorrectly. In those situations, the plan fiduciaries may want to consider interpleader – a special court process where the funds are paid to the court, and a judge determines who is entitled to them.
To avoid misunderstandings or awkward or difficult situations, employers should communicate early and often with employees about their beneficiary designations. Get creative – consider offering a small bonus or prize for employees who confirm their beneficiaries. Send a targeted communication to employees with no beneficiary on file, or to employees who have recently divorced. In short, encourage employees to “write it down!”