Why TSP Beneficiary Form Needs to Be Updated Online

A recent federal court decision regarding the validity of a beneficiary form filled out nearly 40 years ago is a stark reminder that the beneficiary form on retirement accounts, life insurance policies, and bank accounts need to be updated at the time of “life events” (divorce, estrangement, death, marriage).

For federal employees, this means that the Thrift Savings Plan (TSP) and the Federal Employee Group Life Insurance (FEGLI) beneficiary forms among other beneficiary forms, need to be reviewed regularly by employees and retirees.

SEE ALSO:

• Making Sure Your TSP Beneficiary Form Is Accurate and Complete
• How to Avoid the Biggest Mistakes in Making Beneficiary Designations

The federal court case involved Jeffrey Rolison and Margaret Sjostedt who dated in early 1980’s, lived together as an unmarried couple for several years, and broke up nearly 40 years ago. In 1987, Rolison named Sjostedt on a handwritten form (in particular, on a three- by five-inch index card) as the sole beneficiary of his workplace retirement account at Proctor and Gamble. After they broke up, Rolison never changed his beneficiary designation, thereby keeping Sjostedt as the sole beneficiary of his Proctor and Gamble retirement account. Rolison subsequently died in 2015, single and childless. Margaret Sjostedt, as the current (and only) beneficiary of Rolison’s Proctor and Gamble retirement account therefore was in a position to inherit all of Jeffrey Rolison’s retirement account.

However, standing in Margaret Sjodstedt’s claim to inherit Rolison’s retirement account (valued at his time of death in 2015), were Rolison’s two brothers who learned about Sjostedt’s claim. Since 2015, the two brothers have been fighting Proctor and Gamble in federal court, claiming that their brother Jeffrey had no intention to leave the retirement money to Margaret Sjostedt.

Under federal law, an employer is required to pay out a deceased employee’s or a deceased retiree’s employer sponsored qualified retirement plan account to the last recorded beneficiary (or a surviving spouse if the surviving spouse has not filed a waiver). That beneficiary form could be a three- by five-inch index card, as it was 40 years ago when Jeffrey Rolison used it to designate Margaret Sjostedt. Or it could be a beneficiary designation entered online. Note that some employer-sponsored qualified retirement plans (including the Proctor and Gamble retirement plan) have not integrated the old payer beneficiary paper forms into their online beneficiary designation systems.

When Jeffrey Rolison died at age 59 in 2015, he was single and childless. He had no will and no guidance who should inherit his $66,000 home, collection of used BMWs and two cats.
Brian Rolison and Richard Rolison, Jeffery Rolison’s two brothers, hired a local estate lawyer to help them become co-administrators of Jeffrey Rolison’s estate. They received a phone call from Margaret Sjostedt Losinger’s lawyer. (Margaret Sjostedt married. She goes by the name Peggy Losinger) and had two children and stands to inherit Jeffrey Rolison’s two Proctor and Gamble retirement accounts, worth $750,000 when Rolison died in 2015 and is currently worth in 2024 $1.15 million.

In 2020, a federal court directed Proctor and Gamble to award the entire retirement account to Peggy Losinger. The money was put in escrow while Brian and Richard pursued claims against Proctor and Gamble and Peggy Losinger.

The Rolison brothers argued that Proctor and Gamble violated its fiduciary duty by failing to adequately inform Jeffrey Rolison to make sure his retirement plan beneficiary designation was up-to-date. Proctor and Gamble argued that it provided paper warnings to update online beneficiary designations when the company changed service provider, online, and in Jeffrey Rolison’s monthly statements such as “You do not have any beneficiary designations online.” The company did indicate that any prior beneficiary group designations on file with the retirement plan administrator will be retained by Proctor and Gamble, but are not viewable online.

The estate argued that this “boilerplate” beneficiary form filled out by Jeffrey Rolison was insufficient. Even if Rolison saw Proctor and Gamble’s messages, his brothers argued that he would reasonably assume that meant he had no beneficiary form on file. “Default” inheritance rules should therefore apply, with the retirement money going to his estate, and then to his brothers.
The Rolison brothers argued separately that Peggy Losinger should not receive all of the Proctor and Gamble retirement account and that the estate should get an equitable share. In April 2024, a federal district court denied the estate’s claim and rules in favor of Proctor and Gamble, awarding all of Jeffrey Rolison’s retirement account (currently worth $1.15 million) to Peggy Losinger. The Rolison brothers hired a lawyer to file an appeal with the Third US Circuit Court of Appeals. In the meantime, Jeffrey Rolison’s Proctor and Gamble retirement savings account resides in a money market account awaiting distribution.

Employee-benefits lawyers are recommending that companies do a better job informing retirement plan participants about old paper designation forms. However, the responsibility for updating beneficiary forms lies with the retirement plan participants. This is especially the case if the retirement plan is switching to online beneficiary designation, as many retirement plans are currently doing.

Implications of Rolison Case for TSP Participants

The Rolison case has implications for federal employees and retirees who have contributed over the years to the TSP. While the TSP has informed participants of the need to fill out a TSP beneficiary form (Form TSP-3), there are TSP participants who have not, relying on the TSP’s “order of precedence” for distribution of their TSP account when they die.

Furthermore, the TSP has discontinued the use of paper forms. In place of paper forms used in the past to request TSP transactions including TSP account distributions, rollovers and naming a TSP beneficiary, the TSP instituted an online system in which TSP participants set up their online TSP accounts. TSP participants request all TSP transactions online including designating a TSP beneficiary. Like Proctor and Gamble, the TSP will retain any paper TSP designation forms (TSP-3) previously filed. However, these paper forms cannot be viewed online without the establishment of a TSP online account.

If a TSP participant has not established an online TSP account, and if their circumstances have changed since they completed the paper Form TSP-3, then it could result in chaos when the TSP participant dies. An example is when a TSP participant had designated a spouse on Form TSP-3, divorced the spouse and never changed the beneficiary form.

TSP participants who have not established an online TSP account are advised to do so as soon as possible and fill out online and submit a new Form TSP-3. This is the case even if there has been no change to the original designated beneficiary(s). In so doing, the TSP participant will hopefully avoid the chaos of not updating paper retirement plan beneficiary forms, as was the case for Jeffrey Rolison’s Proctor and Gamble retirement plan.