It is Time to Update Your Beneficiaries
Spring forward, Fall back, and – change the batteries in your smoke alarm.
It is helpful to have events that remind us of important tasks. It is especially nice when they are linked to seasonal changes and backed up with public service campaigns.
But for many important tasks you need to come up with your own prompts. I find it helpful to use the Reminder App on my smart phone. I have daily reminders (to take my vitamins/medications), monthly reminders(check/change the HVAC filter), and even annual reminders (schedule my preventive physical exam).
An often neglected, but important, task is reviewing your beneficiary designations. When preparing annual enrollment communication campaigns, I include a “to do” item that reminds employees to review beneficiary designations. I think it makes sense to link that important benefit-related task with the annual enrollment/re-enrollment seasonal activity.
A beneficiary is the designated recipient for your benefits should something happen to you – namely your death. Beneficiary designation is primarily needed for Life Insurance Policies and Retirement Plans. But there may be other benefits that require you to designate a beneficiary.
Beneficiary designations are important for your life insurance company and retirement plan administrator to know how to distribute those dollars in a timely manner.
Unfortunately, failing to name a beneficiary is so common that there are laws and benefit plan rules that stipulate a default beneficiary in the absence of a specific designation. These defaults typically name a surviving spouse as the beneficiary. Even if that is what you want to happen, it is better to make a specific election versus relying on defaults which can delay the process of distributing benefits.
Designating a beneficiary isn’t difficult and once set you may not need to make changes for many years. But life-changing situations do occur and result in a need for updates to your named beneficiaries. Setting a specific time each year to review and update prior designations will help you catch any necessary changes.
Blended family situations can create a need for very specific beneficiary designation arrangements. These probably require conversations with your spouse and possibly with ex-spouses. There may even be a court order that requires specific designations. Your current spouse may need to sign off on a designation that removes them from the primary beneficiary position. Conversations expressing the desires for blended family situations have probably taken place, but you still need to take action with specific designations to make them official.
Designating a beneficiary is straightforward and can often be done on the Life Insurance Company and Retirement Plan websites. In addition to the beneficiary names and dates of birth, you may need Social Security numbers and addresses or phone numbers (to help locate the beneficiary)to complete the designation process. Make sure you have this information readily available to make sure you’re able to complete the process.
First, you will designate the primary beneficiaries. This is who will receive the benefits from your Life Insurance or Retirement Plan. Typically, this will be your spouse. As mentioned above, a spouse may need to indicate their agreement if you designate someone else as primary.
Second, you will designate secondary or contingent beneficiaries. This is who will receive the benefits if something happens to the primary beneficiary before the benefits can be distributed. The contingent beneficiaries are usually your children. In the case of minor children, you may need to designate a Trust or Guardian as the beneficiary (see an attorney for help with this). Such a designation will make sure the dollars you leave behind are used to help raise and educate your children.
Many of us who work with Employee Benefits have a tragic beneficiary story to reinforce the need for this important process. Here’s mine…
One of our employees had a wife pass away. He updated the beneficiaries for his Retirement Plan naming his two daughters. We believed his intent was to provide them with funds for college if he died. The employee subsequently remarried but never updated the Retirement Plan beneficiary information to clarify his intent (the new spouse needed to authorize alternative primary beneficiaries). When the employee passed away unexpectedly, the new spouse disputed the daughters being primary beneficiaries. I don’t recall all the details, but the legal process resulted in halted Retirement Plan distributions long enough that his daughters were unable to immediately access the funds to assist with college expenses.
Use the upcoming Annual Enrollment process as a reminder to review your beneficiary designations and make any updates. Also, don’t forget any Life Policies and Retirement Plans that are not associated with your current employer’s benefits. Why not also set up an annual reminder?
Written by Brian Mitchell
Brian Mitchell has experience leading Total Rewards strategy and implementation for large employers.
Benefit Boosts by Brian Mitchell© – Vol 2024-016
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