Advanced Underwriting Consultants

Ask the Experts – October 24

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

 Question:  Suppose an employee dies six weeks after he’s married. If he has a 401(k) plan set up through his employer, will it automatically go to his surviving spouse? Does it matter if he named his daughter as the beneficiary of this plan?

Answer: It depends on the terms of the 401(k) plan.

The Employee Retirement Income Security Act (ERISA) provides the rules for pension plans. ERISA generally provides that a qualified plan must pass to the surviving spouse of the deceased employee. However, qualified plans may provide that if the deceased employee and his surviving spouse were not married for at least one full year prior to his death, the plan does not automatically pass to the surviving spouse.

Therefore, if the surviving spouse had been married to the employee for at least a year, the 401(k) plan would go to her automatically—regardless of whether the employee named another beneficiary—unless the surviving spouse had consented to the participant naming another beneficiary.

For your client’s situation, if the 401(k) plan does not contain the one-year rule for a surviving spouse to be entitled to the plan, then the general rule—that the plan pass to the surviving spouse—would apply. The surviving spouse would be entitled to the 401(k) even if the deceased employee had named another beneficiary.

If the plan does require the spouse to have been married to the deceased employee for a full year prior to his death, then the surviving spouse is not automatically entitled to the 401(k) plan. Here, it would go to the named beneficiary—the daughter. If there is no named beneficiary, it would go to the deceased employee’s estate, and ultimately be split based on his will.

 Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.