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Government Employees

Importance of Updating Federal Employee Benefit Beneficiaries

October 20th, 2021 | 3 min. read

By Kurt Mears, CRPC

Federal Employee Benefit Beneficiaries

One of the most important financial steps everyone should take is to keep their beneficiaries up to date. Such a simple task can be the difference between protecting your loved ones and pushing them apart.

As way to better explain why, here’s a story:

Once upon a time, a happily married man and father of two grown children retired. Let’s call him John. He consolidated his retirement plans into a single individual retirement account (IRA) and made sure his stay-at-home wife was designated the primary beneficiary should he pass away. After reading some sound financial advice, John then went through the process of adding their children as “contingent” beneficiaries in case his wife was to pass away first.

Sounds good so far, right?

Soon after retiring, John became a little nervous about market conditions and managing money on his own. So, one day, he hired a financial adviser to help manage his investments and his retirement. He and his wife signed the agreement and forms to allow the adviser access to his account.

Tragically, John dies the very next day in an accident.

The death of a beloved father and husband is always hard to accept, but the steps he took prior to his death should have helped provide for his family. Unfortunately, as the new financial adviser discovered, the steps were not done correctly. Instead of adding his children as “contingent” beneficiaries, John inadvertently filled out the paperwork replacing his wife with his children as split primary beneficiaries.

In other words, all his assets went to his children and not his wife, as he intended.

This is where the story COULD take a terrible turn, but fortunately the family was close. The children agreed wholeheartedly this money should go to their widowed mother to fund her living expenses.

However, the process to get the money back to her was a legal and tax nightmare. After a long and involved process with her adviser and her attorneys, it eventually worked out in the end.

Updating Beneficiaries on Your Federal Employee Benefits

The tale above is, sadly, inspired from a true story. The details are different, but the nightmare was the same.

While there are safeguards in place regarding the Thrift Savings Plan and the FERS annuity for federal employees to protect a dependent spouse, the importance of making sure your beneficiaries are up to date cannot be overstated.

Per the Form TSP-3 (the TSP beneficiary form), if you do NOT designate a beneficiary, your assets will be distributed following this statutory order of precedence:

“1. To your spouse

  1. If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
  2. If none, to your parents equally or to your surviving parent
  3. If none, to the appointed executor or administrator of your estate
  4. If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death

As used here, “child” means either a biological child or a child adopted by the participant. It does not include your stepchild or foster child unless you have adopted the child. Nor does it include your biological child if that child has been adopted by someone other than your spouse. “Parents” does not include stepparents who have not adopted you.”

Of course, using the “default” method above requires proof from the beneficiaries of exactly who the beneficiaries are – whether or not you were married, who the children are, etc.

If the rules above do not accurately reflect your wishes, or to make your wishes absolutely clear, you need to take the time to complete the Form TSP-3.

There is an exception to this: the use of “per stirpes,” which designates a pre-deceased contingent beneficiary’s share to go to their descendants rather than be split among the surviving contingents, is not allowed as a valid TSP designation. The “default” order of precedence when not having any beneficiaries designated, however, uses this exact method as spelled out above.

If you need help reviewing or updating your federal employee benefit beneficiaries, consult with a fiduciary financial adviser as you approach retirement. Advance Capital Management, for example, works with you and your attorney to set up your finances per your contingency plans to make sure your wishes are followed.

Call us today to schedule a free consultation.

Learn more about government retirement benefits, including the FERS basic benefit, the Thrift Savings Plan and other retirement planning steps, by downloading our free, easy-to-understand guidebook, FERS Made Simple: Understanding and Maximizing Your Benefit. (click the button below)

FERSbook_coverDownload the FERS E-Book Now!

KurtMearsKURT MEARS is a Chartered Retirement Planning Counselor who provides federal workers with comprehensive wealth management solutions, such as retirement planning and investment advice, to help them achieve their financial goals. Contact him for a free, no obligation financial consultation. 

danDANIEL AMIOT is a CERTIFIED FINANCIAL PLANNER who helps federal employees navigate the complexities of the FERS, TSP, and other government benefits. Contact him for a free, no obligation financial consultation. 


Kurt Mears, CRPC

As a financial adviser, Kurt takes a comprehensive approach to help clients work toward their financial goals by providing wealth management tools including retirement planning, investment portfolio advice and tax strategies. He specializes in federal government benefits and is a Chartered Retirement Planning Counselor.