Don’t Let Your Retirement Plan Beneficiary Designation Become A Bad Soap Opera

There was a recent court case about some beneficiary designation that had some people give some “shattering” article titles on how 401(k) plan designations were trumped by ERISA. A friend of mine sent me the article about how 401(k) rights were trumped by ERISA. I had heard about this case called Cajun Industries LLC v. Robert Kidder, et al., that the article was referring to. The case was really a slam dunk by the court and was very similar to a case I had as an attorney for a TPA firm and I actually came up with the same ruling as what the Court found in this Cajun case. At least I have that going for me.

 In this Cajun Industries case, Leonard Kidder had his first wife as his beneficiary. She predeceased him and then he named his three children as his new beneficiaries. He got remarried to someone else and died six weeks later (like some bad soap opera). Since the new Mrs. Kidder never bothered to give a spousal consent to waive her benefit, the new Mrs. Kidder was entitled to the benefit The three children argued that she was not entitled to get the benefit because their father and the new wife were married less than a year because there is a rule that a plan may have a provision that states that spousal consent is only required if the spouses were married more than a year. Since the plan didn’t have that provision, it was clear that Mrs. Kidder was due that benefit, fair or not.

I had a similar case, but even more challenging. In my case, a law firm partner had his children as his beneficiaries. He got married to the new wife and as part of the pre-nuptial agreement; she waived her benefit to the 401(k) plan in question. He died and his two children felt that they were entitled to the benefit. They were right, you thnk? You’d be wrong.

While a spouse has every right to waive her benefit, a pre-nup by itself is not an actual waiver according to the rules governing retirement plans. So in addition, the spouse had a pre-nup that she signed and then needed to sign a separate waiver form to waive the benefit to make that pre-nup effective. She didn’t, her good fortune.  The children were horrified and their counsel asked about that one year provision in the Code that they thought was a smoking gun. Again, retirement plans can require a year of marriage for spousal waiver, they don’t need to and most plans I have come across don’t have that one year provision.

End of the soap opera story, in my case, this second wife actually waived her right to benefit and the children got the benefit because this second wife wanted to keep her end of the bargain in the pre-nup, valid waiver or not.

 So my opinion, this Cajun case isn’t earth shattering. It was just common sense.

It can’t be stressed enough that plan participants need to review their beneficiaries annually and if the participants gets re-married or widowed, they need to sit down with either ERISA or estate planning counsel to determine what they do with their retirement benefits since these are non-probate assets governed by ERISA and the Internal Revenue Code.

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