Do your worksite employees know the implications of naming a minor as a beneficiary — or what happens if they don’t name a beneficiary at all? Helping worksite employees understand the beneficiary basics ensures their ADP TotalSource Retirement Savings Plan (the “Plan”), insurance policy benefits, other retirement account assets, and Health Savings Account (HSA) funds go to the right people if the worksite employee passes away.
Given life insurers paid out more than $97 billion in death benefits in 2021, this is no small matter.1 Encouraging your worksite employees to review and update their beneficiary information regularly can also help relieve busy HR staff workloads.
Doing so encourages the claims and distribution processes to run smoothly, providing worksite employees’ loved ones with timely access to the benefits and support they may need during a difficult time.
For the Plan, Voya can help. We were there to assist your worksite employees when they were saving for retirement. And now, as a beneficiary of the Plan, we’re here to help them better understand and evaluate their options and make confident decisions about their future.
Understanding beneficiary choices
When it comes to designating beneficiaries, details are key. You want to ensure your worksite employees understand how the beneficiary process works, why keeping beneficiary information updated is essential, and what’s at stake if no beneficiaries are named.
Fortunately, more than eight out of 10 employed Americans report they always keep their beneficiary information up to date for workplace benefits, including group life insurance, retirement plans, etc.2 However, just 39% of baby boomers say they’re prepared to fill a life insurance beneficiary role. That figure drops to 30% for millennials and 22% for Generation Z.3 Which could mean worksite employees and their designated beneficiaries may not have a good sense of what being a beneficiary entails.
The following information can help your worksite employees understand these roles and communicate the expectations more effectively:
- Primary Beneficiary: The first choice — or primary beneficiary — can be one person or multiple people. They are first in line to receive an insurance policy death benefit, the funds held within the Plan or HSA. The percentage interests of all primary beneficiaries must add up to 100%. For married employees with a 401(k) or pension plan, their spouse is the primary beneficiary by default, unless a spousal consent form is signed waiving this right. This rule can also apply to HSAs.
- Contingent Beneficiary: Secondary or contingent beneficiaries will receive the death benefit, Plan account balance or HSA funds if the primary beneficiary/beneficiaries don’t qualify as a beneficiary under the policy or have already passed away. The percentage interests of all contingent beneficiaries must add up to 100%.
- None of the above: If worksite employees don’t name an account beneficiary for the Plan, the Plan will distribute the benefits in the following order of priority*:
- Spouse
- Lineal descendants (e.g., children, grandchildren)
- Parents
- Estate
*If the Plan is unsure of the identity and status, the Plan may distribute the benefit to the deceased owner’s estate.
If no beneficiary is designated for all other accounts (e.g., life insurance, IRA, etc.), a probate court may decide who will receive the funds, per the deceased’s will, if there is one. It’s worth noting the probate process can be lengthy. Either way, if worksite employees don’t name their beneficiaries, or have a will, they don’t get to decide who receives their assets.
Important considerations
The circumstances of beneficiaries can also make receiving benefits or assets more complicated. As worksite employees contemplate whom they’d like to receive their death benefits and account assets, they should consider the following factors:
- If they want to name a child as a beneficiary: Most insurance companies won’t pay proceeds to minors. Money could go into a state-owned trust until the child becomes an adult or until a custodian is named. Even if naming a minor as a beneficiary is allowed, additional court documentation may be needed to access the benefit payment.
Retirement accounts and HSAs have similar restrictions. Neither allows minors to be named as beneficiaries; instead, the plan custodian appoints a guardian to hold and manage the funds until the beneficiary turns 18.
Consulting with a legal advisor makes sense if worksite employees want to name a minor as a beneficiary. That way, they can plan for any complexities and make their beneficiary designation work with their broader wills and estate plans.
- If they want to name someone with special needs as a beneficiary: If worksite employees have dependents with special needs, they may understandably wish to designate them as beneficiaries.
However, receiving additional income from a death benefit, retirement account or HSA can change the amount of government benefits a person with special needs receives. Worksite employees should consider consulting a legal advisor to create a special-needs trust. Such trusts can help adequately protect beneficiaries over the long term.
When to review designations
Selecting beneficiaries is not a one-and-done task but something your worksite employees should review regularly. You can also recommend that they update their beneficiary designations after major life events, including:
- Marriage or divorce
- Childbirth or adoption
- Loss of a loved one
By reviewing their designations, worksite employees can help ensure their Plan account, life insurance, other retirement accounts, and HSA beneficiary selections align with their wishes and reflect their current family circumstances. These assets are an essential part of your worksite employees’ financial lives and can provide invaluable support in the event of a death.
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Triple-I Insurance Facts(link is external), Insurance Information Institute, accessed August 3, 2022.
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Based on the results of a Voya Financial survey conducted June 17-21, 2022, on the Ipsos eNation omnibus online platform among 1,005 adults aged 18+ in the U.S., featuring 495 Americans working full-time or part-time.
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Almazora, Leo. “Insurance preparation gap leading to millions in unclaimed benefits.” Wealth Professional (WP) Canada, Key Media Pty Ltd, January 29, 2020.
