Sep 07, 2017

A review of beneficiary designations may save employers headaches down the road

If you, as an employer, offer your employees life insurance, retirement plans or other benefits providing a death benefit, it is important to periodically confirm that you have a valid beneficiary designation for each such plan or policy. This can save you or your human resource staff hours of time dealing with grieving—and possibly feuding—beneficiaries following an employee’s death.

Anyone who has handled the myriad of loose ends that must be tied up following an employee’s death knows how draining the process can be. One of the easiest ways to ensure smooth dealings with the deceased’s loved ones is to have a valid beneficiary designation for every participant in each of his/her plans requiring one, and to know where such designations are located. Many employers find the most convenient place to retain such beneficiary designations is in the employee’s personnel file. It is recommended that the review of these documents occur at the same time as the healthcare open enrollment, which usually takes place in the fall of the year.

Technically, assets requiring the naming of a beneficiary pass immediately to the named beneficiary at the time of the employee’s death. Unless the decedent’s estate is named as beneficiary (either in the plan or in a written designation form), such assets do not become assets of the decedent’s estate. They pass directly to the named beneficiary.

Although an employer should never advise employees regarding who to name as a beneficiary, if you believe a beneficiary form is incomplete, unclear or inaccurate in some way, by all means notify your employee of your concern and have them correct or clarify the same. For example, if a beneficiary form simply names “my children” ask your employee to amend the form to include not only the children’s complete names but also what should happen in the event that any such child predeceases the employee parent. As another example, if your plan requires spousal consent before naming a beneficiary other than a spouse, double check that such consent has been obtained and properly witnessed, if witnessing is required. 

Because an employer is usually privy to changes in employees’ lives such as marriage, divorce or the birth of children, always remind such employees to check the status of any beneficiary forms in light of these life changes and encourage them to modify them if necessary.

Contact a Chuhak & Tecson Corporate Transactions & Business Law attorney for more information regarding beneficiary designations. 

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Patricia Cadagin O'Brien, Principal

This alert originally appeared in the Fall 2017 Corporate Focus newsletter.