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401k Plan Participant Beneficiaries Difficult to Keep Current

401k Plan Participant Beneficiaries are Difficult to Keep Current. During a recent Fiduciary Education Program at Rutgers University Fred Barstein, Founder of The Plan Sponsor University (TPSU), interviewed, Pedro, one of the program attendees whose job title is Benefits and Compensation Associate at a 600 employee firm. Pedro has a variety of responsibilities for the company compensation packages and benefit plans, with some of his duties being specific to the tax-qualified retirement plan.

During the interview, Fred and Pedro discussed the challenges which arise when plan participants have failed to appropriately assign a beneficiary to their account balance. They also describe some tactics that can be used to stimulate a plan participant into naming an account beneficiary.

Why Participants Fail to Act  

Exactly why plan participants fail to designate a beneficiary is still a mystery.  Everyone has particular reasons, however, during the interview, Pedro sheds insight on what he feels influences the lack of making a beneficiary designation.  Pedro points out that the process of appointing a beneficiary is an emotional time for plan participants.  It is difficult to argue with that logic.  Appointing a beneficiary requires that a participant come to grips with their own mortality or possible incapacity.  Postponing a beneficiary designation may be a participant’s own way of mentally warding-off the inevitable –  mortality or incapacity – for just a little-bit-longer.

How One Benefits Specialist Works Through the Inaction of Plan Participants 

Pedro has noticed that the introduction of humor into the beneficiary-designation-conversation gets results.  When plan participants elude to postponing the selection a beneficiary, Pedro will offer to be a surrogate beneficiary for plan participants until they decide who to name. This offer seems to work as a quick deterrent for those contemplating postponing the selection of a beneficiary.  Although he has not had any participants choose to take-him-up on his offer, he feels people think about the event differently after has makes the humorous suggestion.  In some ways, his humor may be helping participants to get through the emotional stress with which they may be struggling.

The phenomenon of unclaimed or undirected beneficiaries is not specific to plan assets or individual-account-balance size.  Small, medium and large plans struggle with the challenge of missing beneficiary designations.  These challenges normally occur more frequently in plans with seasonal workers, part-time workers or industries with high turnover.

Plan sponsors and administrators may use a variety of methods to locate missing participants or beneficiaries, including:

  • Commercial locator services
  • Credit reporting agencies
  • Internet search tools

The Department of Labor in Field Assistance Bulletin No. 2014-01 lists the minimum search steps a fiduciary must take in order to locate a missing participant or a designated beneficiary.  As Pedro states, it is difficult to make participants keep their documentation up to date.

Steff Chalk

Steff Chalk

Executive Director at 401kTV | TRAU | TPSU
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education.Steff also serves as the Executive Director of 401(k)TV and The Plan Sponsor University. Steff is current faculty of The Retirement Adviser University.
Steff Chalk
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