New Supreme Court Ruling Underscores Importance of Keeping IRA/401(k)/403(b) Beneficiary Designations Up-To-Date

By Alex Menassa, Szarka Financial

Most people understand the importance of keeping their IRA, 401(k) and 403(b) beneficiary designations up-to-date. Updating these forms is easy, it’s free, it keeps the assets out of probate and it controls who is going to get the money when the owner passes away. But now a new Supreme Court ruling has underscored just how important it is to pay attention to these forms and keep them current.

The case of Kennedy vs. DuPont Plan Administrator (January 26, 2009) involved an employee, William Kennedy, who worked for DuPont Co. and had a retirement plan sponsored by the company. His wife, Liv, was the designated beneficiary of the plan. William and Liv were divorced in 1994, and the divorce decree specifically stated that Liv was waiving her rights to the retirement plan. Unfortunately, William never changed the beneficiary designation form for the plan. After William died, his daughter (who was the executor of his estate) asked DuPont to disregard the form and pay the proceeds of the plan to his estate rather than to Liv. To the chagrin of the daughter, the Supreme Court ruled that under ERISA law the plan administrator must follow the participant’s directions as expressed by the beneficiary designation form. The Court ruled that if William truly didn’t want his ex-wife to be the beneficiary, he could easily have changed the form accordingly…but he never did.

It’s certainly possible that William would have wanted the money to go to his daughter rather than his ex; we’ll never know for sure. But this case is just another demonstration that the Court is not going to guess about your intentions. The money goes to whomever you name on the beneficiary form, plain and simple. So if it’s been a while since you looked at the beneficiary designation forms for each of your IRA accounts, retirement plans and/or annuities (remember that each account has its own form), now is the time to dust them off, take a look, and make sure they are updated. Do it now, while you can. It may even make sense to consolidate these accounts, for ease of administration and to cut down on the number of designation forms.

Szarka Financial Education provides objective employee financial education that motivates people to take action and helps them become better financial decision-makers. For more information on Szarka Financial, click here or visit www.szarkafinancial.com.