The Importance of Updating Beneficiary Designations

Let us tell you about John.  John was a participant in the New York City Employees’ Retirement System (NYCERS) pension plan.  When he enrolled in 2005, he was unmarried and had no children.  He named his brother Bill as the beneficiary of the NYCERS survivorship benefit in the event of his death.  John subsequently married Wendy and then died unexpectedly in 2016 without updating the NYCERS beneficiary designation. [Note: The facts of this particular client have been modified to respect the privacy of our client.] Wendy contacted The City Bar Justice Center’s Planning and Estates Law Project (PELP) and PELP is helping her collect the NYCERS benefit as her elective share of John’s estate. (An elective share is the statutory right a surviving spouse has to elect against the spouse’s estate if the spouse has not received at least $50,000 or one-third of the estate, whichever is greater, or the entire estate if the estate is less than $50,000.) PELP has helped more than 575 low-income New Yorkers since 2013 with legal issues relating to the death of a loved one. Many of these cases have involved entitlement to retirement benefits. It would have been much simpler if John had updated his beneficiary designation after his marriage.  It is very important that you make sure you have a beneficiary designation on file with the plan administrator for all of your retirement plan assets that is up to date and reflects your current intentions as to who is to receive the benefit at your death.  You must review and update your beneficiary designations when significant changes occur in your life – most notably marriage, separation, divorce and the birth or death of children and grandchildren.  If you do not update your beneficiary designations, there could be a dispute as to who is entitled to the benefit which will likely necessitate otherwise easily avoidable legal processes.

Have You Ever Been Employed by the City of New York?

Have you ever worked for the City of New York?  The MTA? The New York City Transit Authority, New York City Housing Authority, or New York City Health and Hospitals Corporation?

As an employee, you may have been eligible to pension benefits through the New York City Employees’ Retirement System (NYCERS).  This defined benefit program provides a specified one-time, lump sum retirement benefit and possibly a survivor benefit as a result of the employee’s death.  As a City employee, you may also have been eligible to contribute a portion of your earnings to one or both of the City’s retirement savings plans. The City maintains a Deferred Compensation Plan consisting of two types of defined contribution retirement plans, known by the reference to the Internal Revenue Code sections under which they are created: a 457 Plan and a 401(k) Plan.  In addition, as an employee, you might have taken advantage of the New York City Employee Individual Retirement Account (“NYCE IRA”) program.  Other government entities offer other types of retirement plans.

If you participated in these plans or any other retirement plan, it is very important that you make sure you have a beneficiary designation on file with the plan administrator that is up to date and reflects your current intentions as to who is to receive the benefit at your death.  You must review and update your beneficiary designations when significant changes occur in your life – most notably marriage, separation, divorce and the birth or death of children and grandchildren.

Beneficiary Designation forms are a standard form in the plan enrollment process and the forms are generally available on line.  As a participant in the plan, you can select primary and contingent beneficiaries to inherit the plan after your death. If an employee does not complete a beneficiary designation form, the benefit will be paid according to the terms of the default beneficiary provisions set forth in each separate plan.  The employee’s spouse is typically the beneficiary by default, and if the employee has no spouse, the default beneficiary could be the employee’s estate.  If the estate is the beneficiary, a proceeding will be required in Surrogate’s Court to have someone appointed to collect the benefit and distribute it to the beneficiaries of the employee’s estate.

Two additional points of note:

Under government plans, the protections of the federal Employee Retirement Income Security Act (ERISA), which require spousal consent to designate someone other than a spouse as your beneficiary, are generally not applicable.

Under New York law, the designation of a spouse is automatically revoked by divorce.   You should, however, still always change your beneficiary designation upon divorce.  If you do not, you will create additional work for your survivor(s) to prove to the employer that you were, in fact, divorced.  This may be difficult to do, especially because divorce records in New York are sealed from public view.  Also, not changing your beneficiary designation will cause the benefit to pass to the default beneficiary under the plan, which may not be the individual(s) you wish to benefit.

If you need assistance or advice regarding the completion of a beneficiary designation form, please contact PELP at (212) 382-6756.