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The Importance of Maintaining Retirement Beneficiary Forms

A new employee has a variety of forms to complete when hired. One of the most important forms new employees must complete is a beneficiary form for the company’s retirement benefit plans. It is essential the plan sponsor provide a beneficiary form to keep on file upon enrolling a new employee in a retirement plan.

Why Are Retirement Beneficiary Forms Important? 

The default beneficiary for retirement benefits is typically a spouse. Some retirement plan documents automatically revoke spousal beneficiary designation upon divorce. If this is not specified in the plan document, however, former spouses will still be the designated beneficiary, much to the surprise of any surviving family members. 

For cases in which there is no spouse, up-to-date retirement beneficiary forms avoid the retirement account designating the estate of a deceased participant as a last resort. Reviewing the order of beneficiaries listed in the plan document is vital to ensure funds are distributed timely while in accordance with the participant’s intentions. Having inaccurate or outdated forms on file leads to confusion and extra time spent working to allocate the deceased participant’s account. 

Common Retirement Beneficiary Form Mistakes 

Participants who are automatically enrolled in a retirement plan may often be missed when it comes to completing necessary paperwork. For this reason, plan sponsors who automatically enroll their participants should also provide the retirement beneficiary form at the time of enrollment. Keeping a copy of the form on file allows for easy updates throughout the longevity of the participant’s employment.   

Another common error occurs when there is a change in marital status. When a divorce takes place and the retirement beneficiary form is not updated accordingly, the estranged spouse would be entitled to the funds. It’s important that enrolled participants are aware they must notify plan sponsors when major life events, such as a change in marital status, take place.  

Finally, it is a misconception that a participant’s legal will and testament takes precedence over retirement beneficiary forms. Wills are subject to state laws, while retirement plan documents are subject to federal laws. It is essential participants ensure all these documents are identical.

Retirement Beneficiary Form Best Practices

A plan sponsor should update or confirm beneficiary information annually, or after any known major life change such as marriage, divorce, or additional children. It is also beneficial to have both primary and contingent beneficiaries listed. Contingent beneficiaries receive retirement plan funds if the primary beneficiary passes before the participant. 

Beneficiary forms should include full names, birth dates, social security numbers, relationship to the participant, addresses, and a provision that new designations revoke all prior designations; it is better to have too much information than not enough. It has become increasingly easier for participants and plan sponsors to maintain updated retirement beneficiary forms now that online beneficiary elections have been legalized. While beneficiary forms may sometimes be completed online, a spouse still needs to consent to some designations via a notary or witnessed by a plan representative.

It’s the retirement plan sponsor’s responsibility to have accurate and recent retirement beneficiary forms on file to ensure the beneficiary process flows smoothly and funds are allocated in line with the wishes of the deceased participant. Partnering with a dedicated team of retirement plan professionals to help maintain your retirement beneficiary forms is a simple, surefire way of meeting your employee benefit plan objectives. Contact Watkins Ross here to learn more about our retirement plan services. Together we can create a benefits system that achieves consistent compliance and forward-focused solutions.

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