Who Gets the Money? Unintended Beneficiaries in ERISA Governed Life Insurance and Retirement Plans

The McKennon Law Group PC publishes articles on its California Insurance Litigation and Disability News Blogs that cover important issues concerning insurance bad faith, life insurance, long-term disability and short-term disability insurance, annuities, accidental death insurance, ERISA, and other areas of insurance law.  To speak with a highly skilled Los Angeles long-term disability insurance lawyer at the McKennon Law Group PC, call (949)387-9595 for a free consultation or visit our website at and complete a free consultation form.

Beneficiary designations in life insurance plans determine who receives plan benefits following the death of a plan participant.  As a plan participant under any such life insurance or under a retirement/pension plan, it is important to understand exactly where the money will go when you pass away.  If the retirement or life insurance plan is employer-sponsored, it is likely governed by the Employment Retirement Income Security Act (“ERISA”).  Under ERISA governed life insurance and retirement/pension plans, there are some specific things to keep in mind when considering beneficiary designations.  This blog article briefly discusses some unexpected situations where beneficiary designations may turn out differently than intended, usually when life-changing circumstances are unaccounted for in the beneficiary designation.  Next, we briefly cover some basic best practices in ERISA-specific cases, given the additional requirements on form and timing of beneficiary designations under ERISA.

Life-Changing Circumstances and Unintended Beneficiaries

Unintended beneficiary disputes commonly arise when a life event occurs that is otherwise unaccounted for by the life insurance or retirement plan.  This “unintended beneficiary” problem appears in a variety of ways, but is easiest to understand through examples, as provided below.

  • Divorce

One such instance is when a plan participant designates his or her spouse as the beneficiary, but fails to change that beneficiary designation to reflect a divorce.  If the plan participant fails to change the beneficiary designation before death, the ex-spouse may receive the plan benefits as designated even if there is a divorce agreement to the contrary.  One can imagine how contentious and complex such disputes may become, particularly when they involve current spouses, ex-spouses, children, parents, full-siblings, half-siblings, stepchildren, etc.  If the case is governed by ERISA, the plan document controls and regardless of any private divorce agreement to the contrary, the benefits will go to the designated beneficiary.

  • Murder?

While this sounds extreme, many states have “slayer statutes” specifically designed to prevent a beneficiary from receiving the benefits of a plan where he or she is guilty of murdering the participant.  While this seems like an obvious protection, to the extent that the plan is governed by the federal ERISA statute, it is unclear whether state slayer statutes persist or are otherwise preempted by ERISA.  This becomes a particularly thorny issue given the conflicting interests at play.  While each state’s slayer statute varies, these variances interfere with the uniformity required in ERISA benefits administration for multi-state employers.

  • Simultaneous Death

In the instance of a simultaneous death, the problem becomes which estate receives the benefit if both the plan participant and the beneficiary die at the same time.  In this example, let’s say a husband and wife are killed simultaneously in a car crash.  If the wife is the plan participant for a life insurance plan and she designates her husband as the beneficiary, determining who receives the benefits becomes more difficult.  Like with the slayer statutes above, this also depends on state survivorship laws and may trigger additional preemption questions under ERISA.

Best Practices for Participants and Beneficiaries

In some cases, ERISA-specific requirements for beneficiary designations may lead to issues where the plan participant clearly did not intend for some person to receive the benefits under the policy, but they do anyway.  Given the benefits at stake, and the large potential for complication, it is key for plan participants to adhere to keep some very basic best practices.

1. Ensure that you are aware of the status of your beneficiary designation

Many plan participants make beneficiary designations when they become plan participants.  If any changes or updates do need to occur, they may be so far from the initial designation that the plan participant could have completely forgotten about the life insurance policy and beneficiary designation.  However, it is important to be educated and ensure that you have a complete, valid beneficiary designation on file for your life insurance or retirement plan under ERISA.  Generally, the beneficiary designation should be with either the plan sponsor or the insurer, so you can ask them for a copy.

2. Ensure that your beneficiary designation is up to date

Knowing the status of your beneficiary designation is important, as is knowing that it is up to date.  As made clear in the discussion above, failing to change the beneficiary design

ation following life-changing events like marriage, divorce, or death, may result in an unintended beneficiary receiving benefits that you would rather go to someone else.  When the plan document governs, as it does in ERISA cases, keeping the beneficiary designation up to date is vitally important.

3. Make sure you have followed the procedures spelled out in your policy or plan to designate the beneficiary you want to receive your life insurance benefits

In 2009, the Supreme Court directly addressed how ERISA plan administrators determine beneficiaries after someone’s death.  In Kennedy v. Plan Adm. For Dupont Sav. And Invest. Plan, 555 U.S. 285 (2009), the deceased failed to change the beneficiary designation forms after the divorce.  Although the ex-spouse signed a waiver of rights to the pension during their divorce, the deceased’s estate felt it should pass to the estate whereas the ex-spouse still felt entitled to the interest as the designated beneficiary.  The Supreme Court held that the plan administrator should not be required to assess complex, competing claims and should only have to look at the properly designated beneficiary under the Plan.

Having an experienced disability, health and life insurance attorney matters.  If your claim for health, life, short-term disability or long-term disability insurance has been denied, you can call (949)387-9595 for a free consultation with the attorneys of the McKennon Law Group PC, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

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