Chapter 18: It’s Supposed To Go To Whom? Beneficiary Designation In Governmental Defined Contribution Plans

Here’s an interesting difference between public and private industry plans that we were reminded of recently and that we’d like to share with our governmental clients and their advisors because it can be so problematic.

In most private industry plans, federal law requires that the spouse be the automatic death benefit beneficiary of the participant’s interest under the plan or that the spouse consent to any beneficiary designation that doesn’t name them as the sole primary beneficiary. Not always so in governmental plans.

Take for example the designation of a death benefit beneficiary or beneficiaries under a governmental defined contribution plan or 457(b) plan in a community property state like California. We’ve found that in many cases, local governments are using generic plan documents that don’t even recognize the fact that the respective interests of the participant and the spouse may be governed by state community property laws.

California courts recognize that a defined contribution plan account balance that was accumulated during the course of a marriage is community property and may be subject to division upon marital dissolution.  As importantly, the courts also recognize that the participant may only be able to clearly designate the death benefit beneficiary as to the participant’s one-half community property interest and that the spouse has a one-half interest in the account, based on community property laws.

This can be a huge problem in the case of any governmental plan in a community property state where the plan’s document, forms and procedures do not adequately explain the rights of the participant and those of the spouse to decide how their respective community property interests under the plan will be distributed in the event of their deaths.

The best way to handle this is to make sure that the relevant plan document, plan summary, applicable procedures and beneficiary designation forms and instructions all clearly spell out the respective rights of the participant and the spouse in connection with any beneficiary designation. A commonsense, best practice would be to not allow any beneficiary designation to be made or changed by one spouse without the knowledge and express written consent of the other spouse.

Editor’s Note: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the website. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660 or email us at

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