Nearly every week we read reports of intense, expensive, litigated disputes between beneficiaries of deceased plan participants. A common factor in these reports is that the deceased plan participant failed to file a new beneficiary designation after a divorce, dissolution, annulment or other termination of a marriage. The participant left in place the beneficiary designation that named a former spouse. This was probably unintentional but, after the participant has died, the plan cannot discern the participant’s intention.
These disputes are the product of significant numbers of marriage terminations and the all-too-human tendency to not take care of personal business.
Litigation between the designated former spouse and other likely beneficiaries (e.g., children, subsequent spouse) is costly, difficult and, sad to say, largely avoidable. The defendants in this litigation almost always include the plan and the employer. The stakes are often great. The emotions of the competing claimants are intense. Although it might seem that a simple interpleader action should be a fine solution for the plan and employer, interpleaders are not so simple or inexpensive. Further, courts have been known to refuse to allow the plan to step out of the litigation since one party or both will likely allege some fiduciary breach in the handling of the matter.
A fairly simple plan provision, together with parallel language in the SPD and on the beneficiary designation forms,should largely eliminate confusion, ambiguity and litigation in this context.
In general terms, that provision would state that a designation of a person who is married to the participant at the time the designation is made is automatically voided by a subsequent termination of that marriage. This language would not preclude the participant from re-designating the now former spouse as beneficiary if that was the participant’s wish.
In our experience, many qualified plans (e.g., defined benefit plans, 401(k) plans) already have this language. On the other hand, many welfare plans (e.g., life insurance plans, severance plans) and nonqualified plans (e.g., excess plans, restoration plans, voluntary deferred compensation plans) do not.
We encourage employers to review all qualified plans, nonqualified plans, welfare benefit plans and all similar arrangements that allow a participant to designate a survivor to receive benefits after the participant’s death. If the plan does not contain a provision automatically voiding the designation of a spouse upon termination of the marriage, we encourage employers to take action to add it to the plan document and SPD, communicate it to participants and adjust administrative forms and procedures to reflect this modification. If a plan’s benefits are insured, the insurer should be consulted about this course of action.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.