Upon becoming eligible to participate in your organization’s retirement plan, participants are asked to select a contribution rate, their investments, and to indicate a beneficiary designation.
It may seem obvious that designating a beneficiary would be a mandatory step of the enrollment process and for many plan providers, it is. What is often less obvious, however, is the need to update one’s beneficiary designation in the event of significant life changes.
Not changing the designation when appropriate may, at the very least, subject intended beneficiaries to the inconvenience and distress of the probate process and likely delay distribution of the deceased’s assets. Identifying and updating participants’ beneficiaries for retirement plan assets can ensure a smooth transition of those assets to the people who need them in their loved one’s absence.
This issue is often manifested in the event participants become divorced and eventually remarry. They may know to update their will and contact their life insurance company to change their beneficiary so that the new spouse will be entitled to their assets upon their death, but often people neglect to update their retirement plan beneficiary as well. In this case, their retirement plan assets may go to their former spouse because they neglected to update their designated beneficiary.
In order to avoid these potentially negative experiences, as a fiduciary, it’s important to encourage participants to periodically review their retirement plan beneficiaries, especially if they’ve had major family changes since they set up or last updated their designations.
