Executive Compensation

Executive Compensation Blog originally appears on CompensationStandards.com

Last week I noticed an interesting and informative article from a first time blogger (but long-time practitioner), Ed Burmeister. The title of Ed's blog article was "Beware of Beneficiary Provisions." In the blog, Ed channels Andy Rooney, pointing out all that is wrong and risky about beneficiary designation provisions in stock incentive plans and ESPPs. Speaking as only someone who has been through these headaches a few times can, Ed's article points out of few of the pitfalls in allowing employees too much latitude in the designation of beneficiaries, given the variety of state and foreign laws, and argues compellingly for simplicity. 

"As to the cash accumulated in the account pre-purchase, almost all plans say that the cash is returned to the estate or beneficiary. Because a deceased ESPP participant will almost certainly have been an active employee at death, the employer will normally owe the employee some amount of money in any event (unpaid wages, bonuses, etc.) so why not just include the cash accumulated from ESPP payroll deductions and distribute that the same way company would distribute unpaid wages, i.e., to the personal representative of the estate of that participant.

 Since every state and essentially every country has someone designated as a personal representative of the estate, in almost all cases it will be much easier for a plan administrator to deal with that individual and not worry about whether or not the designated beneficiary form on file is fully effective. Also, this approach always avoids an interpleader if the plan provision is clearly written to provide that the benefits go to the estate of the participant. So... for my two cents, I would avoid beneficiary forms in ESPPs altogether and be quite cautious in how these are used in long-term incentive plans, particularly with respect to overseas employees."