ERISA and Estate Settlement: Navigating Employer Benefits After Death

When an employee dies, their estate faces a complex intersection of federal law, plan documents, and state probate rules. At the center of this complexity sits ERISA, the Employee Retirement Income Security Act of 1974, a statute with consequences that most executors and family members don't fully understand until it's too late.

Here's what often happens: A family sits down with an estate attorney thinking the deceased's will controls everything. The attorney opens the beneficiary designation form for the company 401k and discovers it still names an ex-spouse, or worse, a deceased parent. The family assumes the will overrides it. But ERISA federal law says otherwise. The beneficiary designation wins. The ex-spouse receives $500,000 in retirement assets. The will says nothing about it.

This is not an edge case. It happens thousands of times each year across the United States. And it's entirely preventable with the right knowledge and systems.

ERISA governs the vast majority of private employer retirement and benefit plans in America. It's the legal framework for 401k plans, 403b plans, pensions, group life insurance, group disability insurance, group health insurance, and other employer-sponsored benefits. ERISA doesn't just regulate how these plans operate during an employee's lifetime. It fundamentally changes how benefits flow after death, preempting (overriding) state probate law in ways that most people don't expect.

This article explains how ERISA estate settlement works in practice, what goes wrong, and how professionals can guide their clients through the process systematically.

ERISA Preemption: Why Federal Law Trumps State Probate

ERISA Section 514(a) contains one of the broadest federal preemption clauses in American law. It says that ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." This is breathtakingly wide. It doesn't just apply to tax law or benefits law. It applies to probate, contract law, trust law, and family law.

In 2009, the Supreme Court clarified the scope of this preemption in Kennedy v. Plan Administrator. The Court held that ERISA preemption applies to beneficiary designation disputes, meaning that beneficiary designations in ERISA plans are not subject to state law challenges. If a plan document says the named beneficiary receives the assets, the named beneficiary receives the assets. State probate law cannot override it. State law cannot invalidate it based on changed circumstances, family law doctrines, or public policy.

This creates a hard rule: beneficiary designations in ERISA plans distribute outside probate and outside the estate. They pass directly to the named beneficiary (or beneficiaries), regardless of what the will says. This is why an outdated beneficiary form naming an ex-spouse is catastrophic. The deceased's will might say the assets go to the current spouse or children, but the beneficiary designation controls.

The scope of ERISA preemption is broad, but not infinite. ERISA applies to employer-sponsored plans, including:

• 401k plans (defined contribution)
• Pension plans (defined benefit)
• 403b plans (tax-sheltered annuities for nonprofits and public employees)
• 457 plans (government and certain nonprofit plans)
• Group life insurance provided by employers
• Group disability insurance
• Group health insurance (COBRA continuation coverage)
• Health savings accounts (HSAs) linked to employer plans
• Flexible spending accounts (FSAs)

But ERISA does not cover:

• Individual Retirement Accounts (IRAs), which are governed by different federal law and state contract law
• Government employee pension plans (governed by the Federal Employees Retirement System Act, state pension law, or other specific statutes)
• Church plans (governed by separate federal rules)
• Workers' compensation benefits (state law)
• Social Security
• Military survivor benefits

This distinction matters enormously. An executor dealing with a deceased employee's benefits must identify which assets are ERISA-covered and which are not. The rules are different for each.

Common ERISA Estate Settlement Pitfalls

In estate settlement work, certain ERISA-related problems appear repeatedly. Understanding them helps professionals spot red flags and prevent costly mistakes.

Outdated Beneficiary Designations

This is the most frequent problem. An employee completes a beneficiary form when they're hired, naming their spouse. Five years later, they divorce. They never update the form. They die. The ex-spouse is still the named beneficiary on the plan. Under ERISA law, the ex-spouse receives the assets.

The executor looks at the will, which says the estate goes to the current spouse and children. The current spouse is devastated. The attorney assures them the will controls. Then they contact the plan administrator, who explains that under ERISA, beneficiary designations override wills. The law, they learn, offers them no remedy.

Some states have enacted slayer statutes that protect against this scenario by invalidating beneficiary designations to ex-spouses after divorce. But ERISA preemption creates a circuit split on whether these state law protections apply to ERISA plans. The Second, Fourth, and Seventh Circuits have held that ERISA preempts state slayer statutes. The Third and Ninth Circuits have held otherwise. An executor in the Second Circuit cannot rely on an ex-spouse slayer statute to invalidate a beneficiary designation, but an executor in the Ninth Circuit might.

This uncertainty creates a litigation risk that many practitioners overlook. When large sums are at stake, families sometimes sue to invalidate the beneficiary designation on state law grounds. ERISA preemption may or may not apply, depending on the circuit. The plan administrator may stay neutral and require litigation to resolve the dispute.

Missing or Incomplete Beneficiary Forms

Not all employees complete beneficiary designation forms. Some inherit accounts from previous employers and never update the form. Some complete a form naming only one beneficiary and never specify percentages. When the employee dies without a clear beneficiary, the plan administrator must follow the plan's default provisions, which usually direct the assets to the employee's estate.

This is a disaster for estate settlement. Assets that should have passed directly to beneficiaries (outside probate) now become part of the probate estate. They're subject to state income tax withholding, probate administration, creditor claims, and potentially contested distribution under state law. Federal income tax withholding is often harsh, and the estate must file tax returns and account for the assets. The process takes months longer.

In some cases, the plan document allows the administrator to distribute to a spouse, children, or other statutory beneficiaries if no beneficiary form exists. But not all plans have these protections. The plan document controls.

Simultaneous Death and the Order of Death

ERISA plans are sensitive to the order of death. If a husband and wife both die, and it's unclear who died first, the plan administrator must determine the order to know who receives the assets. The Uniform Simultaneous Death Act says that property passes as if the person with no surviving beneficiaries died first. But this rule doesn't automatically apply to ERISA plans. The plan document might have different rules.

Similarly, if a beneficiary dies before the employee, the assets go to contingent beneficiaries or default provisions. If no contingent beneficiary is named, the assets go to the employee's estate. The timing matters, and careful attention to the plan document is essential.

Spousal Veto: Can You Waive Your Spouse's Rights?

Some employees try to waive their spouse's ERISA rights before death, through a prenuptial agreement or a signed waiver. Under ERISA, this is generally not permitted. A spouse has statutory rights to ERISA plan benefits that cannot be waived without the spouse's written consent. These rights are explained below.

Claiming ERISA Benefits After Death

The process of claiming ERISA plan benefits after an employee's death depends on the type of plan and the type of benefit.

Retirement Plans (401k, Pension, 403b)

When an employee with a balance in a 401k or pension plan dies, the named beneficiary must claim the benefit. The process starts with notification to the plan administrator or the employer's HR department. Most employers require notice within 30 to 60 days of death, though the plan document specifies the exact deadline.

The beneficiary submits a claim, which typically includes:

• Proof of death (death certificate)
• Proof of beneficiary status (the plan document, beneficiary designation form)
• Completed claim form provided by the plan
• Social Security number and contact information
• Banking information for direct deposit (if applicable)

The plan administrator has 90 days to approve or deny the claim under ERISA Section 503. If the claim is denied, the administrator must provide a written explanation of the reasons, the plan provisions cited, and the appeals process. The beneficiary then has 60 days to appeal.

As of 2023, under the SECURE Act 2.0 legislation, most non-spouse beneficiaries must claim retirement plan benefits within 10 years of the employee's death. Spouses have more flexible options, including the ability to defer distributions until the employee would have reached age 72. Certain designated beneficiaries (those under age 21 at the time of the employee's death, or less than 10 years younger than the employee) have different rules.

This 10-year rule is a major change from prior law and catches many families off guard. An adult child who doesn't claim inherited 401k benefits within 10 years loses them entirely, and the unclaimed assets go to the plan. Executors and beneficiaries must track these deadlines carefully.

Group Life Insurance

Group life insurance provided by an employer is a separate benefit, often with its own claims process. The beneficiary submits a claim to the insurance carrier (or the plan administrator if the employer self-insures). The carrier has 30 to 60 days to approve or deny a claim if the death is uncontested. If the death is contested (e.g., suicide within a contestation period, or unclear circumstances), the carrier may delay payment for 6 to 12 months or longer while investigating.

Group life insurance claims frequently become contested when there are questions about the cause of death, or when the employee's death occurred shortly after enrollment or a coverage increase. Executors should expect that some claims will take months to resolve.

COBRA Continuation Coverage

If the deceased employee had group health insurance, the surviving spouse and dependent children may have the right to continue coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act) for up to 36 months after the employee's death. This is an often-overlooked benefit that can provide crucial bridge coverage for families.

The employer must notify the plan administrator and the family of the right to elect COBRA coverage within 14 days of learning of the death. The family then has 60 days to elect coverage. If they do, they must pay the full premium (including the employer's share) plus a small administrative fee. The cost is often 50 percent to 100 percent higher than the employee's pre-tax deduction, but for families without alternative coverage, it's valuable.

Executors should make sure the family receives COBRA notification and understands the deadlines and costs. Missing the 60-day election deadline means losing the coverage option entirely.

Disability and Workers' Compensation Benefits

If the deceased employee was receiving disability benefits (short-term or long-term disability insurance), those benefits terminate upon death. No additional payments are due to the estate or beneficiaries unless the employee was entitled to a residual benefit or death benefit under the specific plan.

Workers' compensation benefits also generally terminate upon the employee's death, unless the employee was entitled to a lump-sum settlement or death benefits under state law. These vary by state, but most states allow workers' compensation death benefits to go to the deceased worker's surviving spouse and children.

Spousal Rights Under ERISA

ERISA grants spouses statutory protections that cannot be waived without the spouse's written, notarized consent. These rules override beneficiary designations and family law, making them essential to understand in estate settlement.

Qualified Joint and Survivor Annuity (QJSA)

In defined benefit pension plans, a spouse has a right to receive at least 50 percent of the pension as a survivor benefit. This is called the Qualified Joint and Survivor Annuity (QJSA). Unless the employee and spouse elect otherwise (with the spouse's written consent), the employee's pension benefit is automatically reduced during the employee's lifetime to fund the survivor benefit. When the employee dies, the surviving spouse receives the survivor benefit for life.

This is enormously protective of spouses. Even if the beneficiary designation names someone else, the spouse still has statutory rights to the survivor benefit. And even if the employee's will disinherits the spouse, the spouse still receives the survivor benefit.

However, the QJSA applies only to pension plans, not to 401k or other defined contribution plans. A spouse cannot override a 401k beneficiary designation by claiming a QJSA right.

Qualified Preretirement Survivor Benefit (QPSA)

In pension plans, if the employee dies before retirement, the spouse has a right to a survivor benefit under the Qualified Preretirement Survivor Benefit (QPSA) rule. Like the QJSA, this benefit is protected and cannot be waived without the spouse's written consent.

Retirement Equity Act (REA) Protections

The Retirement Equity Act (REA) of 1984 provides additional protections, including the requirement that plan administrators obtain spousal consent for most major plan decisions affecting the spouse's survivor benefit rights. These protections apply to both pension and 401k plans and cannot be overridden by prenuptial agreements or wills.

Qualified Domestic Relations Order (QDRO)

If a divorce decree awards a portion of a retirement plan benefit to an ex-spouse, the ex-spouse can enforce the award using a Qualified Domestic Relations Order (QDRO). This is an order issued by a state court that directs the plan administrator to distribute the ex-spouse's share directly to the ex-spouse, without paying the full amount to the employee first.

QDROs are complex documents that must comply with specific ERISA and tax law requirements. Many divorce decrees do not include a proper QDRO, and the ex-spouse must later ask the court to issue one. If the employee dies before a QDRO is issued, the enforceability of the ex-spouse's claim becomes complicated and often requires litigation.

Executors dealing with a divorce should verify whether a QDRO exists and whether it has been properly submitted to the plan administrator. If not, the estate may face a claim from an ex-spouse, and the plan may be required to segregate funds pending resolution.

Plan Administrator Responsibilities

When an employee dies, the plan administrator has specific legal duties under ERISA. Understanding these duties helps executors and families know what to expect and what to demand.

Death Notification and Claims Processing

The plan administrator must maintain procedures for notifying beneficiaries of the death and providing information about claiming benefits. The specific procedures are set out in the plan document and the Summary Plan Description. Most plans require notice within 30 to 60 days of death.

Once the plan administrator receives a claim for benefits, it must process the claim within 90 days under ERISA Section 503. The administrator must either approve and pay the claim, or send a written explanation of why the claim is being denied, citing specific plan provisions and rules.

If the claim is denied, the beneficiary has 60 days to file an appeal. The administrator must then review the appeal and issue a decision within 60 days. During the appeals process, the administrator may request additional information from the beneficiary.

Fiduciary Duty

Plan administrators are fiduciaries under ERISA, meaning they must act in the best interests of the plan and its beneficiaries. They cannot play favorites or follow instructions from the employer that harm beneficiaries. They must follow the plan document and ERISA law, even when doing so creates friction with the employer or other stakeholders.

In an estate settlement context, the plan administrator's fiduciary duty means it must:

• Process claims accurately and on time
• Pay benefits to the correct beneficiary (or beneficiaries)
• Follow the plan document scrupulously
• Maintain confidentiality
• Report to beneficiaries and comply with ERISA notice requirements

If a plan administrator breaches these duties, a beneficiary can sue for damages under ERISA Section 502(a).

Missing Beneficiaries and Default Provisions

If the plan administrator cannot locate the named beneficiary, it must follow the plan document's default provisions, which usually direct the assets to the deceased employee's estate. Some plans allow administrators to distribute to a spouse, children, or other relatives if the named beneficiary cannot be found.

If the plan has assets that cannot be distributed because no beneficiary can be located, the administrator must hold the assets in trust and search for the beneficiary. Some plans use escheat procedures under state law to eventually transfer unclaimed assets to the state.

Executors should help the plan administrator locate beneficiaries if they're missing. If a beneficiary has moved or changed contact information, the executor can often provide updated information from the deceased's address book, phone contacts, or family records.

Professional Strategies for ERISA Estate Issues

Professionals working in estate settlement can implement several strategies to prevent problems and resolve them when they arise.

Pre-Death Planning and Beneficiary Audits

The best time to address ERISA beneficiary issues is before death, during the estate planning process. Attorneys and financial advisors should conduct a beneficiary designation audit, reviewing all ERISA plans, retirement accounts, and beneficiary designations to ensure they align with the client's overall estate plan.

This audit should:

• Identify all ERISA plans and employer benefits
• Review current beneficiary designations
• Identify any designations that are outdated or conflicts with the will
• Flag spousal rights issues (pension survivor benefits, REA protections)
• Check for missing or incomplete beneficiary forms
• Identify any divorce decrees that might create QDRO obligations
• Verify that alternative beneficiaries are named in case the primary beneficiary predeceases the employee

For clients with substantial retirement assets, this beneficiary audit is essential. It takes a few hours and can prevent six-figure mistakes after death.

Post-Death Inventory and Analysis

When an executor is managing an estate, one of the first tasks should be to identify all employer benefits and ERISA plans. This requires:

• Contacting the deceased's employer and HR department
• Requesting copies of all plan documents and beneficiary designation forms
• Obtaining plan summaries and contact information for plan administrators
• Identifying which benefits are ERISA-covered and which are not
• Determining the current status of each benefit (active, vested, deferred, etc.)

Once the executor has this information, they can begin the claims process for each plan. This inventory should be completed within 60 to 90 days of death, before critical deadlines pass.

Coordination with Estate Administration

In many estates, ERISA benefits are the largest assets. Executors must coordinate the ERISA benefit claims with the overall estate administration process. This includes:

• Deciding whether to probate the estate or use small estate procedures
• Understanding how ERISA benefits affect the estate's liquidity and solvency
• Determining whether ERISA assets are subject to estate tax or income tax withholding
• Coordinating with the estate's tax preparer on income and estate tax reporting
• Managing the timing of distributions to ensure all deadlines are met

In some cases, ERISA benefits make up 50 percent or more of the estate's value. The executor must ensure that these assets are claimed promptly and distributed correctly.

Litigation in Federal Court

If a dispute arises over an ERISA benefit, litigation occurs in federal court under ERISA Section 502(a). This means that disputes over beneficiary designations, claims denials, and plan administrator liability are heard in federal district court, not state probate court.

An executor or beneficiary who believes a claim was wrongfully denied can sue the plan administrator for breach of fiduciary duty or failure to follow the plan document. The burden of proof is on the plan administrator to show that the denial was correct and followed the plan terms and ERISA law.

These cases are technical and require detailed knowledge of both ERISA law and the specific plan document. Many state probate or estate attorneys lack this expertise. For significant disputes, executors should consult with attorneys who specialize in ERISA litigation.

Frequently Asked Questions

Q: Can a beneficiary designation override my will?

A: Yes, completely. Under ERISA law, a beneficiary designation on an employer plan controls who receives the benefit, regardless of what your will says. The beneficiary receives the asset outside probate and outside your estate. This is why updating beneficiary designations is critical during estate planning.

Q: My ex-spouse is still listed as the beneficiary on my 401k. Can my current spouse override this?

A: Not automatically. Under ERISA, the ex-spouse is the named beneficiary and has a legal right to the assets. Your current spouse can challenge this in court in some states (where a slayer statute applies), but in many circuits, ERISA preempts these state law protections. Your only solution is to update the beneficiary designation immediately. Once you change it to your current spouse (or to your estate), the ex-spouse has no further claim.

Q: Who gets my 401k if I die without naming a beneficiary?

A: The plan administrator will follow the plan's default provisions, which usually direct the assets to your estate. The assets then become part of your probate estate and are distributed under your will or state intestacy law. This is undesirable because the assets become subject to probate administration, federal income tax withholding, and potentially creditor claims. Always complete a beneficiary form.

Q: What is COBRA, and do my family members qualify after I die?

A: COBRA is a federal law that allows families to continue group health insurance coverage after a family member's death. Your spouse and dependent children can elect COBRA coverage for up to 36 months if they lose coverage due to your death. They must elect within 60 days of losing coverage and must pay the full premium. COBRA is expensive but valuable for families without alternative coverage.

Q: Does my spouse have any rights to my 401k if I die?

A: It depends. If your plan is a pension plan (not a 401k), your spouse has a statutory right to a survivor benefit that cannot be waived without their written consent. This right is protected under the Retirement Equity Act. If your plan is a 401k, your spouse has no automatic rights, but your spouse can be named as the beneficiary and receives the asset directly. Always verify your plan type and discuss spousal protections with your estate planning attorney.

How Afterpath Helps

Estate settlement professionals know that ERISA compliance is one of the most complex and high-stakes parts of the job. A missed deadline, a missed beneficiary, or an unclaimed asset can create months of additional work and risk for both the executor and the estate's beneficiaries.

Afterpath's estate settlement platform helps professionals stay on top of ERISA benefits by centralizing all task management, deadline tracking, and documentation in one place. Executors can record all employer benefits, track claim status, set reminders for the 10-year SECURE Act deadline, and coordinate communications with plan administrators.

For professionals managing multiple estates, Afterpath provides templates and checklists specifically for ERISA plan administration. You can build a standard process for beneficiary audits, death notifications, and claims processing, ensuring consistency and reducing the risk of missed steps.

Learn more about how Afterpath supports estate settlement professionals at Afterpath Pro. If you're not yet using Afterpath, join our waitlist to be among the first to access the platform.