Who Can Be a Beneficiary on an ERISA Plan?
When people set up retirement accounts, they sometimes forget to designate a beneficiary. Or perhaps they named a beneficiary, but their relationship with that person changed. A beneficiary will receive the benefits of your plan upon your death. The last thing you want is your hard-earned money to go to someone who is no longer in your life.
When filling out or updating your beneficiary information, perhaps you wonder, Who can be a beneficiary on an ERISA plan such as a retirement account?
ERISA, short for The Employee Retirement Income Security Act of 1974, sets minimum standards for certain employer-sponsored retirement accounts, health insurance, and life insurance plans. If you have an ERISA-regulated retirement plan, you may wonder if ERISA has rules regarding who you can choose as your beneficiary. Below, the ERISA attorneys at the Peace Law Firm describe some issues involving ERISA plans and beneficiaries.
What Are ERISA Retirement Plans?
Before discussing the details of an ERISA plan and who can be a beneficiary, you should understand the definition of an ERISA plan. ERISA is a federal law that sets minimum standards on private employer-sponsored retirement plans, health plans, life insurance plans, and other benefit plans.
ERISA covers only specific types of retirement plans: defined benefit plans and defined contribution plans. These plans include:
- 401(k) plans,
- 403(b) plans,
- Simplified Employee Pension Plans (SEP),
- Profit-sharing plans, and
- Stock bonus plans.
ERISA generally does not govern individual retirement accounts (IRAs). Additionally, while ERISA covers most private employer-sponsored plans, it does not cover plans administered by federal, state, or local governments or churches.
Who Can Be a Beneficiary of an ERISA Plan?
Now that you know what ERISA covers, you’d like to know who can be a beneficiary on an ERISA plan. Generally, an ERISA plan participant can select just about anyone to be their beneficiary. Typically, a plan participant selects their spouse, children, or other family members. However, there are several things that ERISA plan participants should know when selecting their beneficiaries.
Automatic Rights for Spouses
Most retirement plans regulated by ERISA state that your spouse will receive the benefit should you die first. In a defined benefit plan, for example, a current spouse is typically entitled to a qualified joint and survivor annuity (QJSA), which is paid out over their lifetime.
Regardless of whether you name your spouse as an ERISA benefit plan beneficiary, they’re entitled to benefits upon your death. If you name someone other than your spouse as the ERISA plan beneficiary, your spouse is automatically entitled to 50% of the plan’s benefits. If your spouse doesn’t want this benefit, they must submit a waiver, and you must name someone else as a beneficiary.
Former Spouse as Beneficiary
Since many people select their current spouses as their beneficiaries, updating your beneficiary information is important once you’re divorced. Otherwise, your former spouse may receive your benefits upon your death.
Named Beneficiary v. Will Designation
Perhaps you’ve named a beneficiary on your ERISA retirement plan, but in your will, you’ve designated a different beneficiary for your ERISA retirement plan. You may wonder what happens when there is a conflict between your will’s named beneficiary and the ERISA plan beneficiary.
The person designated on your ERISA plan as your beneficiary will receive the benefit. Thus, if you want to ensure that your desired beneficiary receives the benefit, update your beneficiary information directly with your plan’s administrator.
No Beneficiary Named
Sometimes, people who enroll in these private-employer administered retirement plans do not designate any beneficiary. When you don’t name any beneficiaries to your ERISA retirement plan, your benefit will pass to your estate. Then the executor will distribute it along with your other assets per your will or estate plan.
Take Proactive Steps to Protect Your Family’s Future
As you can see, updating your retirement plan’s beneficiaries is essential if you encounter any significant life changes. Sometimes, your named beneficiaries die before you. Or perhaps your relationship has changed. Be sure to review your beneficiary designations regularly to ensure that your family’s future is protected after you’ve gone.
Additionally, you should inform your beneficiaries that they are your beneficiaries. This will make it more likely that your plan administrator will be able to locate them.
Speak with Our ERISA Attorney about ERISA Beneficiaries
ERISA is a complex law that covers many different types of benefits. It regulates who can be a beneficiary on an ERISA plan. ERISA also creates standards for how employers administer various plans and what happens if your claim is denied under certain health or disability plans. If you need help on these and other ERISA-related issues, contact the Peace Law Firm today. We serve employees and beneficiaries but never insurance companies. We will help you fight to receive the benefits you deserve.