The simplest oversights can cause the biggest problems for heirs, especially those intended to inherit retirement accounts.
Over the years, I’ve seen a number of court cases in which the logical beneficiary of a retirement plan is denied the benefits because of an incomplete or outdated beneficiary designation.
In the latest case, a woman worked for Kaiser Permanente in California for more than 20 years.
She died without ever having a spouse, domestic partner, child, or other dependent. Her sister filed a claim for benefits under the employer’s retirement plan. The claim was denied.
The employer stated that the deceased employee hadn’t completed a beneficiary designation for the plan. In addition, the sister was not a spouse, child, or dependent, so under the plan she wasn’t a default beneficiary for cases in which the employee hadn’t designated a beneficiary.
The sister stated that her deceased sister began an online beneficiary designation that was almost completed and substantially complied with the designation process. The sister said she should receive the benefits under that designation.
But the plan’s rules state that all the steps of the designation process must be completed before a designation will be accepted. If the procedure in the plan documents had been less specific or complete, the court said it might have accepted that the late employee had substantially complied with the process.
But the plan documents were clear and definitely required that all the steps had to be completed. The employee had to receive an email confirmation from the plan stating that the beneficiary designation was accepted.
Therefore, the court ruled that the sister was not the designated beneficiary of the retirement plan.
It’s not clear from the court case what happens to the benefits, but language in the opinion implies that the benefits revert to the retirement plan.
The case is another cautionary tale that should remind us to review beneficiary designations every few years. Important designations are for retirement plans and accounts, life insurance, and annuities.