Beneficiary designation

What a beneficiary designation is

Participants name primary and contingent beneficiaries on the plan’s form or website. The plan pays according to its own terms and the designation on file, not according to a will. For a married participant to name anyone other than the spouse, the spouse must consent in writing, witnessed by a notary or a plan representative. If there is no valid designation, the plan document sets the order, usually the spouse and then the estate.

Why it matters to employers

The plan administrator has to pay the right person, and disputes happen when records are missing or out of date. Carry designations over when you change providers, and remind employees to review them after a marriage, divorce or birth. For taxes, a surviving spouse can roll the account into their own plan or IRA, while most other beneficiaries must empty the account within 10 years.

Example

A participant names his sister at 25, marries at 30, and dies at 40 without updating the form. In most 401(k) plans his wife receives the account, because she never consented to the sister as beneficiary.

Common mistakes

• Losing designations during a provider change.

• Accepting a spouse’s waiver that was not notarized or witnessed by a plan representative.

• Employees assuming a divorce removes a former spouse automatically. That depends on the plan’s terms.

• Naming no contingent beneficiary.