Keep beneficiary designations up to date. When employees sign up to participate in a group retirement plan, one of the documents they complete is a beneficiary designation form. It’s a form that should be reviewed and updated when appropriate, as demonstrated by a recent court case.
In Herring v. Campbell, the deceased had designated his wife as the primary beneficiary under his company’s pension plan, but never named a secondary beneficiary. After his wife died, the deceased failed to designate a new primary beneficiary and subsequently died without a valid beneficiary. Under the plan’s terms, when a participant dies without a valid beneficiary, the plan distributes the deceased’s benefits in the following order: surviving spouse, surviving children, surviving parents, surviving siblings, and finally the estate’s executor or administrator.
The plan administrator reviewed the distribution possibilities and distributed the benefits to the deceased’s siblings. The deceased’s stepsons challenged the distribution, arguing that they were entitled to the distribution under the Texas probate law doctrine of equitable adoption. This doctrine applies when a person promises or acts in a way that precludes the person and his or her estate from denying a child’s adopted status. However, it doesn’t create a legal parent-child relationship.
The plan administrator conducted a second review and again concluded that the stepsons weren’t entitled to the benefits. The stepsons then filed suit. The district court concluded that the plan administrator abused her discretion by failing to consider the claim of equitable adoption. The plan administrator appealed.
The U.S. Court of Appeals for the Fifth Circuit found that the plan administrator’s interpretation of the plan document was correct. The plan administrator had concluded that the term “children” as defined in the plan document meant biological or legally adopted children. Nothing in the plan required the plan administrator to incorporate the concept of equitable adoption into the plan definition of children. Thus, the court reversed the district court’s decision.
The failure of participants to keep their beneficiary designations up to date can have unintended consequences. Remind your participants to keep them current.