One of the most important jobs of people running their company’s retirement plan is to read the plan documents (Beneficiary Forms ) which seems obvious but surprisingly is not done enough. In addition, as changes occur with participants like divorce, forms need to be updated. So what happens when a divorced spouse of a participant in a plan dies first but the QDRO (qualified domestic relations order) is not updated?
In a recent case, the divorced spouse of a participant in a pension planned died in 2011 before the husband had retired. The QDRO gave the ex-wife a 50% interest in her husband’s pension plan. After the husband retired in 2014, his company only provided 50% of the benefit following the QDRO. Even after a new QDRO was filed, the company refused to pay the additional amount.
A court ruled that the new QDRO gave the retired worker the rights to 100% of the pension. If the husband had retired before his ex-wife had died, then the rights to 50% of the pension would have reverted to her estate. Common sense dictates that relieving the company of the obligation to pay 50% of the pension is not fair.
All of which could have been avoided if the forms were updated when the ex-wife died. It’s difficult if not impossible for plan sponsors to know when these changes have to be made and then how to get participants to act, especially with remote workers. The key is hiring the right partners like advisors and TPAs who provide checklists and follow-up on them regularly as well as finding ways to engage workers.
At a TPSU program held at Vanderbilt University, a plan sponsor at a trucking company and the adjunct lecturer discuss innovative ways to communicate with remote workers to get them to update beneficiary forms.
