HR Best Practices: 5 Common Questions About Tracking Beneficiaries

As an HR Business Partner, I am often working with clients to ensure their benefits and 401(k) administration is both in compliance and following HR best practices.  One key aspect of benefits and 401(k) administration is tracking your employee beneficiaries.  Ensuring that your employees have designated and up-to-date beneficiary information is both a way to mitigate risk for your organization and help your employees be prepared to protect their plans and help their families in the event of an unexpected tragedy. Below are five common questions that I hear from clients and employees about beneficiaries:

What is a beneficiary?

For the purposes of employee benefit plans, a beneficiary is the individual(s) an employee designates to receive the monetary value of the plan upon passing. Depending on the plan, employees may designate one or multiple beneficiaries and allocate a percentage of the monetary value of the plan to each beneficiary.  Many plans are written that spouses are considered automatic beneficiaries.  If this is the case an employee can choose to designate someone other than his/her spouse; however, the spouse must sign off on a document acknowledging that he/she is not the beneficiary on record.  It is strongly encouraged that employees also designate a contingent beneficiary, or multiple, in the event that the primary elected beneficiary passes at the same time as, or prior to, the employee.

What plans do I need to track beneficiaries for?

An organization needs to track beneficiaries for any benefit plan that allocates a monetary value benefit to the employee.  In most organizations this includes:

• 401(k) Retirement Plans
• Pension Plans
• Life Insurance
• Accidental Death and Dismemberment Life Insurance

How do I track employee beneficiaries?

How you track them truly depends on the record keeping process for your organization.  Some providers may offer beneficiary tracking services as part of their normal services, or for an additional cost.  Many organizations track and maintain beneficiary information internally. Often times, plan providers have Beneficiary Forms that your organization can use, which helps simplify the process significantly.  Organizations who have electronic benefits record keeping abilities may choose to have employees designate and store their beneficiaries online.  Organizations that require paper enrollment may have paper forms maintained in the employee’s benefits file.  Be sure to contact your plan providers to determine if they will maintain the information on your behalf.

What happens if an employee who hasn’t designated beneficiaries passes away?

In most cases, if an employee does not have a designated beneficiaries the monetary value of his/her benefit plan(s) will either not be released from the provider (frozen), or they will be released to the employee’s estate.  It can take a great deal of time to probate (process) the estate transactions, in which case the funds would be held up until that time.  Some employees may choose to designate their beneficiaries in their last will and testament; in most cases, again, these funds are released to the estate and are held up until processed. Employees should refer to their estate planner/attorney for information specific to the content and execution of their will.

We don’t have any beneficiaries tracked – where do I begin?

If you’re starting from scratch, consider the following to determine your organization’s approach to tracking beneficiaries:

1. What benefit plans within your organization require beneficiary designation?
2. Which of those plans track beneficiary data for you?
3. Do any of those plans provide template beneficiary designation forms that you can use?
4. Will you sure data electronically or via paper?

Once you’ve determined who/how you will store beneficiary information be sure to implement a process that reminds employees to review and update beneficiaries as necessary, consider annually during Open Enrollment.

Having a knowledge of beneficiaries and how to track them on behalf of your employees, along with a solid process for documenting and updating them, will go a long way for both your organization and your employees.  Mitigating risk to the organization in the event of an unexpected tragedy is important; however, it is equally as important to help your employees prepare their benefit plans in a way that allows for the benefits to be allocated effectively and efficiently to their family members upon passing. If you’re still unsure of how/where/when to start tracking or updating your beneficiaries, your benefits broker is a great resource for additional information.