Beneficiary of Unintended Consequences

Upon becoming eligible to participate in your company’s 401(k) plan, participants are asked to select investments, contribution rate and to designate a beneficiary. These tasks seem obvious, and it is likely an application would not be accepted unless this information was completed. What is often less obvious, though, is the need to update beneficiary designation in the event of significant life changes, and acknowledging 401(k) assets may not then coincide with the terms of a will addressing other assets.

Not changing the designation when appropriate may, at the least, subject your intended beneficiaries to the inconvenience and distress of the probate process and likely delay distribution of assets. Identifying and updating participants’ beneficiaries for 401(k) plan assets can ensure a smooth transition of 401(k) assets to the people who need them in their absence.

This issue often manifests 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 the new spouse will be entitled to their assets upon their death; however, people often neglect to update their 401(k) plan beneficiary. In this event, their 401(k) plan assets may go to their former spouse because they neglected to update their 401(k) beneficiary designation form.

In order to avoid these potential negative experiences, encourage participants to periodically review their 401(k) beneficiary designation forms, especially if they've had major family changes since they set up or last updated their beneficiary designation.

If you would like to update your own 401(k) beneficiary designation or need help assisting clients to do so, reach out to a KerberRose Retirement Plan Advisor today.