A recent decision by the Seventh Circuit Court of Appeals in Havlik v. University of Chicago highlights the importance of promptly resolving deficient retirement plan beneficiary changes and designations. Even though the judgment in favor of the employer and recordkeeper was upheld on appeal, the lawsuit could have been avoided if the deficiency was addressed before the participant’s death. 

This case involved unfortunate circumstances surrounding an attempted beneficiary designation change. The deceased participant participated in two University of Chicago retirement plans that were subject to qualified joint and survivor annuity requirements that required spousal consent to designate a beneficiary other than the surviving spouse or select an alternative payment form. In 1998, the deceased participant properly designated his wife and his trust as his retirement plan beneficiaries but did not elect an alternative payment form at that time. In November 2019, a few weeks before his passing, the participant submitted a new beneficiary designation that designated trust accounts for his grandchildren as his primary beneficiary. However, spousal consent was provided by the wife’s attorney-in-fact under a power of attorney. 

The recordkeeper initially rejected the new 2019 beneficiary designation due to an apparent lack of signature in December 2019, approximately two weeks after the participant passed away, but the rejection letter was not received. Later, in January 2022, approximately a year after the participant’s wife passed away, the recordkeeper explained that the 2019 beneficiary designation was rejected because the spousal consent appeared to be invalid because the power of attorney did not authorize the attorney-in-fact to execute the spousal consent form. 

Navigating beneficiary designation changes pursuant to a power of attorney adds complexity to the sensitivity surrounding beneficiary designations because of the need to determine what the power of attorney authorizes and whether it complies with applicable law. While there may not be anything an employer can do if a retirement plan participant passes away shortly after submitting a deficient beneficiary designation, responding promptly and clearly explaining the deficiency increase the chances of the issue being resolved or at least, avoiding litigation if the deficiency cannot be corrected.