In estate planning, the beneficiary designation usually
But in some cases there's a higher power: federal law. In
particular, the Employee Retirement Income Security Act of 1974
(ERISA) rules, when it comes to employer retirement plans like a
A worker's spouse generally is the entitled heir to a deceased
A recent court decision noted that Congress intended "to
provide automatic survivor benefits to the spouses of vested
Spouses can waive those rights. But such a waiver may not be
enforceable unless it's done properly.
Considering how frequently marriages end in divorce and
subsequent remarriages, plan participants must be vigilant. If
you want to leave your 401(k) account to children from a previous
marriage, for example, doing so after remarrying may not be
You'll need a proper waiver from your new bride or groom.
According to an advisory council report to the U.S. Department
of Labor, the death of an employee participating in a company
retirement plan often triggers disputes over who will collect the
funds. The worst battles occur after a marriage or divorce, if
the worker dies without following through on the beneficiary
The case mentioned above illustrates what can happen.
Michael Cox worked for an energy company with a 401(k) plan.
Before he married, Cox and his bride to be, Kathy, signed a
prenuptial agreement. The agreement included Kathy's waiver of
her rights to Michael's 401(k).
But only a spouse can waive this ERISA right. And prenups are
signed before the wedding.
Did It Again
So this couple re-executed the agreement after the wedding.
Kathy was Michael's spouse when she signed the postnup, waiving
her rights again. This was the third time Kathy and Michael had
been married to each other.
Fourteen months after this wedding, in the midst of going
through a third divorce, Michael died. On his 401(k) beneficiary
form, Michael had named his parents as the beneficiaries.
Kathy declined to relinquish money in the account, so the
dispute went to court. A district court and a federal appeals
court ruled in her favor, so Kathy collected.
Why didn't the prenup-postnup combo work as a waiver? The
agreements she signed "failed to inform Kathy -- in clear and
express terms -- that she both had a spousal right to receive the
funds in the 401(k) plan and that she was waiving this right,"
the court explained. So Kathy still had a spouse's rights to
ERISA allows retirement plans to waive the spousal consent
requirement if the worker has been married less than a year.
But the option must be spelled out in the plan and company
plans aren't required to include this exception. If the one-year
clause is not in the plan documents, even the briefest marriage
will trigger spousal rights to the decedent's account.
Workers desiring a spousal waiver should check with their plan
administrator to see if the plan has its own waiver documents,
says Joe Cicchinelli, a consultant with retirement expert Ed
A plan's own waiver consent is likely to be cost-free and,
drafted properly, enable your survivors to avoid a dispute over
who gets your account.