Spencer Fane LLP Logo

THE FIDUCIARY CORNER: Plan Language Governs Whether Beneficiary Designation Forms Must

It’s a scenario that occurs all too frequently for 401(k) plan administrators: a participant completes a beneficiary designation form naming his current wife as beneficiary, then is divorced, subsequently fills out another beneficiary designation form naming someone else as his beneficiary, but omits information required by the form. Must the administrator honor the new beneficiary designation, or is the former spouse entitled to the plan’s death benefit? The answer lies in the language of the plan.

The Eighth U.S. Court of Appeals recently addressed a similar scenario in Alliant Tech Systems, Inc. v. Marks. In that case, the participant had first identified his mother as his beneficiary, but then named his stepdaughter as beneficiary on a subsequent designation form. In doing so, however, he failed to complete a section of the form that described the beneficiary’s relationship to him. While the participant was hospitalized, the plan’s third-party administrator rejected the subsequent election form as “not in good order.” The participant was never able to submit another form.

After the participant died, the formerly-named beneficiary (his mother’s estate) and stepdaughter each claimed the death benefit. Relying upon the “terms of the plan,” the plan’s administrative committee found that the subsequent election form was substantially complete and that the participant’s intent was clear, and so awarded the death benefit to the stepdaughter.

The court of appeals affirmed the committee’s decision. Finding that the plan itself did not require participants to specify the relationship of their designated beneficiary, the court agreed that the failure to include that information on the form was immaterial. In addition, because the plan required only receipt of a beneficiary designation form, and not acceptance of the form, the fact that the participant’s subsequent form was returned and not resubmitted was also irrelevant. As the court properly held, in determining whether to honor a beneficiary designation, the proper focus is on what the plan requires, not what a form requests.