Wednesday, May 18, 2011
With Any Change of Family Status, Review Your 401(k) Beneficiary Provisions with Your Advisor
12:52 PM | 
Posted by
pensionfinancialservices |
Claiming a Beneficiary is Not Enough- You Have To Take An Extra Step
A recent case that has been widely reported (Cajun Industries LLC v. Robert Kidder) shows how important it is to “go by the rules” set forth by ERISA in 401(k) plans. Not only does this case show that the rules of 401(k) plans are specific, but that naming a beneficiary on a 401(k) plan other than a spouse will not necessarily be upheld in court, despite the owner’s best intentions.
This is evidenced by the death of Leonard Kidder who was an employee of Cajun Industries and a participant in the company’s 401(k) plan. Mr. Kidder originally named his wife Betty Kidder as the sole beneficiary of his plan, and after her death, he updated his beneficiary form naming his three children as beneficiaries (with the best of intentions).
Subsequently, he remarried Beth Benet Kidder, and then he died just six weeks after the marriage. Enter: the lawsuit. The Kidder children claimed that they were entitled to the funds, but the new Mrs. Kidder, even though she was married for only six weeks, argued that she was entitled to those funds.
Who won? Mrs. Kidder. Why? Because in order to legally name his children as beneficiaries after his new marriage, Mr. Kidder needed to take an extra step; that is, obtaining a spousal consent from the new Mrs. to waive her rights to the funds. That step would allow the children to remain the beneficiaries without any question, yet most people are unaware of the requirement.
For retirement plans, the beneficiary form is usually the most important document, and it comes with the power to override prenuptual agreements and even instructions in a will But when it comes to ERISA plans like 401(k) plans, all bets are off. Unfortunately for the Kidder children, even though ERISA allows plans to waive spousal consent when a participant is married for less than one year, it’s not “required,” so the law ruled in favor of the new Mrs.
Lesson Learned: Anytime that you make a change in your family status through divorce, remarriage, birth of a new child, always contact your retirement planning advisor to ascertain if you need specific protections. There are so many exceptions and fine points that can undo even your best intentions.
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