All You Need is Love — and Updated Beneficiary Designations

Every year when Valentine’s Day comes around, we spend time thinking about how much our loved ones mean to us. We also spend a lot of money to show them how valuable their love is to us: more than $1 billion on candy and sweets; nearly $2 billion on flowers, most of them roses; and over $4 billion for jewelry.

For all of the gift-giving and appreciating done on this holiday, many people neglect to take the one financial step for their loved ones that will help protect their financial future: completing and updating their beneficiary designations.

Plan sponsors are ultimately responsible for ensuring participants complete their beneficiary designations and keep them updated. So while our thoughts are turned to our loved ones on Valentine’s Day, let’s give some thought to helping plan participants take care of their loved ones by stressing the value and importance of beneficiary designations.

I’ve read estimates that up to 40 percent of participants are missing beneficiary designations as part of their retirement account record. When the death of a participant does occur, that’s not the best time to discover that beneficiary designations are not up-to-date or incomplete.

This will obviously be a time of great need and stress for the deceased participant’s family and loved ones. Having wrong or outdated information on a beneficiary designation form, or no beneficiary information at all, can put a plan sponsor in a difficult position.  In a worst-case scenario, a plan sponsor may find themselves involved in an estate legal dispute.  Obviously, the plan sponsor can only follow the instructions made by the participant, but problems can arise if the information wasn’t updated after a significant event like divorce or re-marriage, for example.

Auto-enrollment can make the problem of beneficiary designations more complicated. There’s no way to automatically designate beneficiaries, so plan sponsors often have to remind participants to complete beneficiary designation forms on their own. Recordkeepers can help in this regard, but most will say they can only support a plan sponsor in gathering this information. The responsibility for the completeness and accuracy of this information rests solely on the shoulders of the plan sponsor.

Even when beneficiary designations are completed, it is important for a plan sponsor to remind participants to keep them updated. The reason is, change happens. People get married, divorced and remarried all of the time. Children arrive and spouses or other family members pass away. These life events mean that designating beneficiaries is not a one-and-done task—it’s a best practice to remind plan participants in regular plan communications to check and update their beneficiaries.

I recommend that plan sponsors ask participants once per year to verify their beneficiary information. Participants should also be asked to sign a form to attest that their current designations are accurate and up-to-date.

An efficient recordkeeping system would also help plan sponsors store and maintain beneficiary designation forms. Because the responsibility for this information sits with the plan sponsor, the plan sponsor should do what’s necessary to ensure they are fulfilling their duties according to ERISA regulations.