Late last year I reviewed the case of Milgram v. Orthopedic Associates which dealt with a plan having to essentially pay twice because it gave too much money to an ex-spouse in a QDRO distribution. Now consider the other side of the coin, where a plan makes a distribution to a participant without protecting the rights of the spouse. They are beneficiaries just like participants and it is important to make sure you know they are out there so you can address their claims.
For most defined benefit pension plans, these plans generally have to provide a Qualified Joint and Survivor Annuity (QJSA), or a Qualified Preretirement Survivor Annuity (QPSA) if the participants dies before retirement payments are made. Generally, if a married participant in a retirement plan with survivor annuity benefits wants to receive a distribution in a different form, the spouse must provide written consent and the consent must be witnessed by a plan representative or notary public. As a general rule, most profit sharing and 401(k) plans are safe harbored from the QJSA rules but they still require spousal consent to designate a beneficiary other than a spouse.
So what happens if someone gets married AFTER they have already enrolled in your plan and forgets to tell you? Depending on the terms of the plan, their status as a "spouse" may create claims by a beneficiary even if you are not aware of it. Call it Milgram in reverse…the spouse makes a claim after the distribution is made to secondary beneficiaries or the participant. How can you protect your plan against "springing" spouses who appear without your knowledge? Or maybe people who are not spouses that you don’t find out about the divorce until after the participant dies and forgot to remove the ex-spouse from the designation form? Lots of potential pitfalls relating to spouses as beneficiaries.
While I don’t have an absolute answer to dealing with these issues, consider the open-enrollment period for your health plan as an opportunity to take stock of your retirement plan participants and their beneficiary designations. If you are giving participants the opportunity to change their investment elections (and you should be), you should also remind them to update their beneficiary designations and their marital status. Your duties as a fiduciary mean more than just assuming your participants will tell you about changes. Sometimes you have to remind them to tell you.