Another Lesson in Updating Beneficiary Designations

If you’re among the many who have IRAs, 401(k)s and other retirement accounts with beneficiary designations, now is the time to ensure they have been updated to reflect your current wishes. This is the vital lesson sent by a federal court case described in the article “Court Backs 401(k) Beneficiary Designation in Estate Claim” from the National Association of Plan Advisors.

Jeffrey Rolison worked for Proctor & Gamble for many years. When he enrolled in the company’s 401(k) plan, he named his then-girlfriend, whom he lived with, as the sole beneficiary of his 401(k). The couple broke up in 1989—just two years after he had enrolled in the 401(k) plan.

Over the years, the account grew to $754,000. However, Rolison never changed the beneficiary. According to the court decision, The Proctor & Gamble U.S. Business Services Co. et al. v. Estate of Jeffrey Rolison et al., heard in the U.S. District Court for the Middle District of Pennsylvania, P&G notified Rolison many times over the years of his ability to change the beneficiary designation. The option was sent by mail in the earlier years of his enrollment, and as time passed, it became an option he could have taken care of online.

The court said he was given notice and direction but never changed his beneficiary. Estate planning attorneys reading this already know the outcome. However, the estate devoted countless years and resources to battling this issue, with many motions for summary judgment, a denied motion for certification to appeal and many, many motions for reconsideration.

The judge in the case for summary judgment, where the court decides without going to trial, explained the party seeking summary judgment is responsible for informing the court of the reason for its request and demonstrating the absence of a genuine dispute of fact. The court said it failed to do so.

Rolison’s estate claimed that Proctor & Gamble violated its fiduciary duty under ERISA (a federal law governing employee benefits) by not disclosing material information to Rolison. The estate said P&G should have told him who his designated beneficiary was, not just his option to make a change. The argument was that the company only provides “generic beneficiary information” to employees and doesn’t inform them of their “specific beneficiary status.”

Proctor & Gamble argued that the Court had, in previous decisions, determined that the company had fulfilled all disclosure requirements. The estate didn’t disprove that P&G informed Rolison and all employees how to change their beneficiary designations. The judge agreed.

The court said Rolison had been informed of his options over the course of thirteen years. If he didn’t go online to add a designation, the paper beneficiary designation would stand.

Although the relationship had ended two decades earlier, Rolison had such a large account that he didn’t update his beneficiary designation. Was this what he intended? It’s possible, but it stands as a strong example of why beneficiary designations need to be updated: to ensure that assets pass to the right person and to prevent an estate from being depleted by long, costly litigation.

Any time you meet with your estate planning attorney to update your estate plan should be a reminder to update beneficiary designations. However, if you haven’t reviewed these accounts in years, review them immediately.

Reference: National Association of Plan Advisors (May 6, 2024) “Court Backs 401(k) Beneficiary Designation in Estate Claim”