Benefits Basics – When an Employee Dies: A Resource Guide for HR & Benefits Professionals

As a member of your company’s human resources or employee benefits department, one of the most difficult calls you may receive is from a colleague or an employee’s family member notifying you of the death of an employee. This situation demands you to be at your best – you will be called upon to usher your company’s workforce through the loss of a colleague and to help your HR department and grieving family members navigate many benefits and compensation issues that must be dealt with related to the deceased employee. This guide provides a high-level reference resource, in a plan-by-plan format, on how to approach each type of compensation or benefit arrangement when an employee dies, and offers up some practical tips on employee benefits issues that may come up as you manage your company’s compensation and benefit administration for a deceased employee.

The information given in this guide is general in nature and is not intended to address every benefit or tax issue that may come up when dealing with the death of an employee or other nuances that may arise when considering the deceased employee (or their specific family and probate situation) or the specifics of your company’s benefit plans. In addition, any tax or other rules described in this guide are current as of the date of this guide, and do not infer that the rules described are the only rules (tax or otherwise) that may apply and are subject to change. As a result, we always recommend that you engage your in-house or external legal counsel or other tax or employee benefits advisors when working through compensation and benefits issues related to the death of an employee.

An Overview of Relevant Law

Before we dive into discussing issues for administering your company’s compensation and benefit plans, it is important to have a high-level understanding of the probate process because, as we explain below, what happens in probate can affect who is entitled to certain death benefits. In addition, it helps to understand how the Employee Retirement Income Security Act (ERISA), a federal law governing most retirement and welfare benefit plans, interacts with state laws when death benefits are involved.

Overview of Probate

“Probate” is the legal process through which a court appoints an executor (in some states, called a personal representative) to administer the deceased employee’s estate, and validates a will (if there is one) or decides who inherits the deceased’s estate if there is no will. If the deceased had a will, that document would normally name one or more individuals to serve as the executor of the estate. If the employee dies without a will, then state law provides a list of people who are eligible to fill the role.

A court will ultimately appoint one or more individuals to serve as executor for the deceased employee’s estate, by issuing “Letters of Administration”, “Domiciliary Letters” or simply “Letters”, which give the executor authority to act. (Other terms might also apply to the form of the document used for this appointment.)

However, there are two times when probate may not be needed to determine who has the right to a deceased employee’s outstanding compensation or benefits:

• Beneficiary Designations. If the deceased employee has arranged for their assets to pass directly to one or more beneficiaries without going through the probate process, then these items are not counted as part of the probate estate. In the employee benefits context, this would occur when an employee has made beneficiary designations related to a benefit. Thus, if your company’s compensation or benefit plan has a beneficiary designation process that was utilized by the employee, then waiting for the probate process is generally not needed in order to distribute death benefits. This is why it’s important for employer compensation and benefit plans to permit (and encourage the use of) beneficiary designations—it helps employees (especially executives) in their estate planning process and may allow the employee’s accrued benefits to pass directly to their beneficiaries without the hassle and delay of probate.

• Small Estate Affidavit. If the value of the deceased employee’s estate is below the dollar threshold set by state law, then the employee’s heirs may be able to use a “small estate affidavit.” This allows heirs to receive the employee’s assets without having to go through probate at all (or permits an expedited probate). In other words, if you receive a small estate affidavit, any payments owed to the deceased’s estate instead are paid directly to the heir(s) listed in the affidavit.

Interaction of ERISA and State Laws

ERISA Section 514(a) explicitly preempts state laws that “relate to” an employee benefit plan that is subject to ERISA, with limited exceptions for certain insurance, banking, and securities laws. Courts have interpreted this preemption language to mean that any state law that refers directly to an employee benefit plan, or that bears indirectly on an employee benefit plan, is not enforceable against an ERISA-governed employee benefit plan. For example, if an ERISA benefit plan says that a death benefit should be paid to a spouse, but state law says that the death benefit under a benefit plan should be paid to the estate, then the terms of the plan will control instead of the state law. The U.S. Supreme Court confirmed this approach in their 2001 opinion in Egelhoff v. Egelhoff (ERISA preempts a state law that revokes beneficiary designations upon divorce). Similarly, in their 2009 opinion in Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, the U.S. Supreme Court held that a plan may rely solely on its plan documents to determine the proper beneficiary for a death benefit, and can ignore extraneous documents that contradict the terms of the plan (such as a divorce decree).

What does this mean for you when administering benefit plans?

• Where an ERISA plan is involved, you need only look at the terms of the plan (including any beneficiary designations, if applicable under that plan) to determine who is owed payments or benefits following an employee’s death.  
• But, for non-ERISA plans, the result is less clear. In that case, you would have to look to relevant state law to determine the extent to which you can honor any beneficiary designation. For example, many states provide that upon divorce, any beneficiary designation naming the ex-spouse as the beneficiary is automatically void, unless the divorce decree provides otherwise. For ERISA plans, you ignore that rule because ERISA preempts that state law and would implement the most recent beneficiary designation. For non-ERISA plans, however, if the deceased employee had named his spouse as the beneficiary, and then they divorced, you should generally void that beneficiary designation if required under state law.

Practical Steps to Take When an Employee Dies

Who You Should Involve

If you receive the initial call about an employee’s death from a family member, it’s imperative that you promptly contact the following individuals within your organization: the head of HR for the employee’s business unit (who should, in turn, contact the deceased’s manager and co-workers), the payroll department, the equity administration team (if any), the compensation team (if any), and all relevant members of the employee benefits team. You may also need to tell your financial or accounting department if the deceased employee has significant amounts of unvested compensation that will vest or need to be paid due to their death. Each individual will play an important part in the weeks (and sometime months or years) to come.

After you’ve surveyed the plans and arrangements in which the deceased participated, you should also contact the relevant plan vendors or third-party administrators, if there is one, who may need to take certain actions to account for the death of the participant.

While not a topic of this guide, work with your HR team (and the deceased’s family) to determine the appropriate format and contents of any messaging to your broader workforce, and possibly even customers or other suppliers, about the employee’s death.

The Information You Need

There are three documents you should get from the executor or deceased’s family or beneficiaries before taking any steps relating to compensation and benefits:

• A copy of the death certificate. Not only will this prove the employee’s death, but will provide some important information, such as whether the employee was married, and will be required documentation for processing certain benefits.

• Either a copy of the “Letters of Administration”, or simply “Letters”, which is issued by a probate court and names the executor(s) or a copy of a properly completed “small estate affidavit.” This document will let you know who you are authorized to deal with regarding any compensation or benefits for which there is no beneficiary designation on file.

• A Form W-9 from the executor regarding the estate or from each heir listed in a small estate affidavit, as well as from any family member or beneficiary entitled to benefits or payments (as described below). The information on the Form W-9 will give your payroll department and your benefit plan administrators the information they need to make sure payments are properly reported to the IRS and state taxing authorities.

You will also need to figure out which benefit plans or programs the employee was enrolled in or otherwise had an accrued benefit under, and whether the employee had any individual agreements in effect with the company (such as equity awards, employment agreements, employee loans, etc.) and make sure you have copies of all of those documents and, if applicable, any beneficiary designations made by the employee. This information may come from internal HR records or from third-party benefit plan administrators or vendors. You also need to determine whether or not the plan in question is governed by ERISA, because as discussed above under “An Overview of Relevant Law”, and as explained below, for non-ERISA plans you may have to review state law to determine who is owed the payment or benefit.

Cash and Equity Arrangements

Overview

When an employee dies, you will need to consider the impact on a variety of compensation amounts or equity benefits. First, you should survey all of the cash and equity compensation that is or may be due with respect to the deceased. Almost certainly, a final paycheck will be due. Also consider:

• Does the deceased have any outstanding paychecks that were issued, but not yet cashed as of the date of death?
• Does the deceased have accrued vacation or other PTO that may need to be paid based on applicable state law and the company’s PTO policies?
• Does the deceased have business expenses that were incurred or submitted to the company, but have not yet been reimbursed?
• Does any annual or long-term cash bonus plan provide for a payout upon death, and if so, when? (Bonus plans sometimes will pay out automatically at target upon death, or may provide for payout to occur at the end of the performance period based on the level of achievement of actual performance, and either on a pro-rated basis or in full.)
• Are there commissions payable?
• Is there an employment agreement that provides for payments upon death?
• Does the deceased have equity awards, such as stock options or restricted stock units?
• Is there an amount held in an employee stock purchase plan account for the deceased that was waiting to be used to buy employer stock?
• On the flip side, does the deceased owe any money to the company, such as under a personal loan? And if so, do the terms of the loan permit the company to offset the loan amount from other compensation?

Second, after identifying the agreements, policies and arrangements under which cash or equity compensation may be due, determine whether the agreement, policy or arrangement is subject to ERISA. If you are unsure, consult with your legal or other benefits advisors on this point.

• If it is subject to ERISA, then follow the death benefit payment provisions of the plan, if any. Because ERISA preempts state law, you are permitted to pay according to the terms of the plan, including the beneficiary designation on file for a plan that permits beneficiary designations.

• If it is not subject to ERISA, then you need to check whether the program permitted a beneficiary designation (and if so, is a beneficiary designation on file) or whether the terms of the program provided for a default beneficiary, such as a spouse. If so, you need to check relevant state laws to make sure the beneficiary designation or the default provision can be honored. As discussed under “Interaction of ERISA and State Laws”, above, some state laws may override the beneficiary designation or program terms and require you to make payment as required by law, and not as described in your documents.

If the program is silent about beneficiaries, then check whether the state in which the employee worked has a wage payment law that would dictate to whom the compensation items listed above should be paid. If there is no law on point, then the executor of the employee’s estate or the heirs listed in a small estate affidavit, whichever is applicable, are entitled to the payments or equity.

Manner of Payment and Taxation

Any compensation paid to the executor of an estate should be made payable to “[Name of Executor], Executor, Estate of [Name of Employee]” or simply to “Estate of [Name of Employee]” or a similar variation of this. Any compensation paid to the deceased’s heirs under a small estate affidavit should be divided among the named heirs and paid directly to each of them.

For wages paid to the estate, heirs, or beneficiaries during the year when the employee dies, you must withhold FICA (both Social Security and Medicare taxes) and FUTA (federal unemployment taxes) on the payment and report the amount only as wages on the deceased employee’s Form W-2, Box 3 (social security wages) and Box 5 (Medicare wages) issued for the year of death. The FICA and FUTA taxes withheld are reported in Boxes 4 and 6, respectively. But, you do not report the payments in box 1 of Form W-2, and you do not withhold regular federal income taxes. If you make the payments after the year of death, then those payments are not reported on a Form W-2, and you would withhold no taxes.

Whether the payment is made in the year of death or after, you also report the payments made to the estate, heirs, or beneficiaries on a Form 1099-MISC in box 3. In general, no federal income tax withholding is required, although backup withholding rules may apply to these payments if the recipient fails to provide you with the taxpayer ID number or Social Security number for processing payments.

You should always work closely with your payroll department and related tax teams to determine the appropriate tax withholding and reporting for any payments related to a deceased employee’s compensation or equity arrangements.

Special Issues for Equity Awards

Vesting and Transfer of Equity Awards. For all types of equity awards, you will need to determine what happens to unvested awards upon the employee’s death, e.g., is the award forfeited, does vesting accelerate, or does vesting continue after death? How to treat any equity awards after the employee’s death will either be discussed in the equity plan document or in the award agreement issued to the employee at the time of grant. Sometimes, an employment agreement might also describe what happens to equity awards upon death.

If the employee has outstanding stock options, you also need to determine the post-death exercise period for those options. Again, this information should be available in the equity plan document, individual award agreement or possibly in an employment agreement. Inform the deceased’s beneficiary, estate, or heirs, as applicable, of how long they have to exercise the award after the deceased’s death under the terms of the plan or the award agreement and provide them information on how to exercise such awards. In addition, notify the third party administer for your equity plan (if any), of the deceased’s death and specify any actions they need to take regarding such employee’s awards.

Tax Treatment of Equity Awards. Similar to other types of compensation as discussed above, there is no required income tax withholding for any equity award transactions that occur after the deceased’s death. Rather, any compensation income recognized for this transaction should be reported on a Form 1099-MISC issued to the employee’s beneficiary, estate, or heirs.

FICA and FUTA tax implications for equity awards upon an employee’s death are more complicated:

• FICA and FUTA tax withholding applies (and should be reported on the employee’s final Form W-2) for any awards that were (1) vested before the deceased’s death (not awards that vest because of the deceased’s death), and (2) were exercised/settled before the end of the calendar year of the deceased’s death.

• FICA and FUTA tax withholding does not apply, however, for (1) any awards (or any part of an award) for which vesting is accelerated upon the deceased’s death, no matter when exercised/settled, and (2) awards exercised or settled after the calendar year in which the deceased’s death occurs.

Employee Benefit Plans

Qualified Retirement Plans

401(k) and Other Types of Defined Contribution Retirement Plans. 401(k) plans are the most common employer-provided retirement benefit offered to employees. If an employee dies with an account balance in a 401(k) plan, the first issue is to determine if the deceased employee was vested in his plan benefit at the time of death, and if not, whether the plan provides for full vesting upon death while employed (which is almost always the case). Also check the plan terms to see if any employer contribution (matching, profit sharing, or other non-elective contribution) is due to the employee for the year of death. While some plans may require that an employee normally be employed on December 31 or have completed 1,000 hours of service during the year to receive an employer contribution, those requirements are often waived if the employee dies while employed. You will need to review the 401(k) plan document and the summary plan description to determine what rules should apply to the employee’s 401(k) plan account. You should always also work with the plan’s recordkeeper to review the deceased’s account information to determine that the proper vesting calculations are applied to the account.

If there is a vested account, and if the participant is married at the time of death, then the laws governing defined contribution retirement plans require that the participant’s spouse automatically be the beneficiary of the account, unless that spouse has waived his or her right to be the beneficiary. A spouse waives their right to be the beneficiary if the participant has properly completed a beneficiary designation form naming another person(s) as the beneficiary, the spouse has signed that form, and the spouse’s signature is witnessed by a notary public or plan representative. In such a case, the vested account belongs to the named beneficiary, not the spouse.

If the participant is unmarried and there is no beneficiary designation on file, then the plan’s terms will dictate who is treated as the beneficiary. Plans often list family members in a certain order, such as children, then parents, then brothers and sisters, and so on. Ultimately, a plan will almost always indicate that the last beneficiary, if there are no others, will be the employee’s estate.

Once you have determined who is the proper recipient of the plan account balance, notify the individual (or the executor, if it’s the estate) that they have the right to the benefit and give them a copy of the plan’s summary plan description, so they understand when and how they may apply for benefits to commence.

In general, 401(k) plans let a beneficiary keep the 401(k) account in the plan, roll the account over (including directly to avoid withholding) to another qualified employer plan or an individual retirement account (IRA), or receive a distribution as a lump sum. Some defined contribution plans also offer distributions as installment payments or an annuity. A spouse beneficiary has the same rollover options that the employee would have had – i.e., take a distribution or roll over the distribution to an IRA or an employer qualified plan in which the spouse participates. A non-spousal beneficiary can also elect a rollover, but only to an IRA. See below for a “Warning” about how payments made to an estate are not eligible for rollover.

Under Internal Revenue Code rules governing minimum required distributions, if the beneficiary does not begin to receive distributions over a period not to exceed their life expectancy by December 31 of the year after the participant’s death (or for a spouse beneficiary, by December 31 of the year in which the participant would have attained their minimum required distribution age), then the entire account generally must be paid to the beneficiary by December 31 of the year containing the 10^th anniversary of the participant’s death. Different rules apply if there is no beneficiary, such as if the payment is owed to the estate; in that case, distribution must be completed within 5 calendar years after the year of the employee’s death. It is important to note that while a plan may not pay benefits later than these dates, the terms of the plan may require that the payments be made earlier, and there are other nuances under the minimum required distribution rules that may apply depending on the facts of the particular employee and beneficiary. You should check the terms of the plan and consult with your plan recordkeeper to determine when benefits must be paid to a beneficiary or to the employee’s estate.

Pension Plans. While pension plans are becoming less common as each year goes by, many employers still maintain them, even though the benefits under the plan have almost all been frozen at this point. The following discussion assumes that the employee has not commenced their pension benefit at the time of death; if they did, then whether any death benefit is payable depends on the form of payment selected by the employee at the time benefits commenced (e.g., a joint & survivor annuity, term certain annuity, etc.). Since most pension plans do not permit employees to begin their pension benefits while employed (in no small part because the law generally does not allow it), the rest of this section assumes that the employee had not started to receive their pension benefits at the time of death.

The first issue to consider is whether the deceased employee was vested in their plan benefit at the time of death, and if not, whether the plan provides for full vesting upon death. If the deceased has a vested benefit under the plan, then the law requires that the pension plan pay a death benefit to the participant’s spouse. This type of spousal death benefit is known as a “qualified preretirement survivor annuity” or “QPSA”.  There are two circumstances when a QPSA may not be payable, even if the participant is married at the time of death: (i) often, a plan will require that the participant and spouse be married for the one-year period preceding death for the spouse to be entitled to the benefit, and (ii) although rare, a plan may have allowed the participant to waive the QPSA to avoid having a deduction applied to their benefit to “pay for” the QPSA protection. You will need to review the plan documents and coordinate with the plan’s recordkeeper to determine what result will apply in the circumstance and if a QPSA benefit is due to a spouse.

While in the typical pension plan situation, no death benefits are payable if the deceased is unmarried (or was not married for at least one year), that is not always the case. Some pension plans that describe their benefits as a hypothetical account balance or as a lump sum—such as cash balance or pension equity plans—may provide for the full lump sum benefit under the plan to be paid to the surviving spouse, to the beneficiary designated by the participant, or if none, then to the estate. If the participant named a beneficiary and was married at the time of death, then the beneficiary designation is void if the spouse had not consented to the beneficiary designation as mentioned under “401(k) and Other Types of Defined Contribution Plans”, above. If the beneficiary designation is void, then typically the spouse would have the right to any death benefit.

Payment to the spouse, beneficiary or estate will be made at the time, and in the form, described in the plan document. Once you have determined who is the proper recipient of the death benefit, notify the individual (or the executor, if it’s the estate) that they have the right to the benefit and give them a copy of the plan’s summary plan description, so they understand when and how they may apply for benefits to commence.

Welfare Plans

Life Insurance. As noted above, you will need a copy of the death certificate. Obviously, this is critical for administration of any life insurance benefit. The life insurance carrier (or third-party administrator, if self-funded) should be notified of the employee’s death and provided a copy of the death certificate. Check whether there is a beneficiary designation on file for the life insurance benefit and share the designation with the life insurance carrier to the extent the carrier does not already have this information. Also, consider confirming that the life insurance carrier properly processes the claim and pays the life insurance benefit to the beneficiary without issue. If the life insurance carrier denies a claim, you may be surprised by a lawsuit filed by an alleged beneficiary against the plan and the company claiming that the life insurance benefit was improperly denied or that the benefit was paid to the wrong individual. Although it may be the insurance carrier’s duty to pay any life insurance benefit, an employer can be roped into this type of litigation as the sponsor of the ERISA plan and potential liability could exist, for example, if the sponsor was found to have violated its fiduciary duties related to participant communications or enrollment issues regarding the life insurance benefit.

In addition, if the company sponsors optional dependent life insurance benefits, check to see if dependent life insurance was elected by the deceased employee and work with the dependent and carrier to explore whether the dependent wants to convert (or “port”) the policy into an individual policy.  

Traditional Group Health Plans. For your traditional group health plans, such as medical, dental, and vision, you will want to tell the insurance carriers and/or third-party administrators about the employee’s death and determine when coverage will terminate for any enrolled dependents (e.g., on the date of death, on the last day of the month in which death occurred, or on the last day of the pay period in which death occurred).

If the company is subject to federal COBRA rules (generally, employers with at least 20 employees are subject to COBRA), you must notify the COBRA administrator of the employee’s death within 30 days from the date of death, and then the COBRA administrator has 14 days to send out the COBRA election packet to enrolled dependents. If you administer COBRA internally, then you have a total of 44 days to send out the COBRA election packet. Recall that the maximum COBRA coverage period is up to 36 months (instead of the standard 18 months) when the employee’s death is the qualifying event triggering the right for a dependent to enroll in COBRA coverage.

Because an employer may charge up to 102% of the full premium amount (both the employer and employee portions) for any individual who enrolls in COBRA coverage, the surviving spouse and dependents might wish to consider whether they have other, more reasonably priced, coverage available to them. For example, a dependent might be eligible for group health coverage through their own employer at a cheaper rate. The dependent should have a right to enroll in their own employer’s health plan, within 30 days of losing your plan’s coverage, under a HIPAA special enrollment right, but this special right to enroll mid-plan year is generally waived if COBRA is elected. Dependents might also consider enrollment in an individual health insurance policy offered through the government marketplace. In addition, you will need to review any employment agreements with the deceased employee to confirm if the company has agreed to pay for all or any part of an eligible dependent’s COBRA premiums in the event of the employee’s death.

If you are a small employer not subject to the federal COBRA rules, there still may be similar requirements under a state “mini COBRA” law of which you should be aware. You should not assume that the insurance carrier will administer your insurance policy’s mini COBRA provisions; often, insurance policies impose certain administrative obligations on the employer, such as notice obligations related to mini COBRA requirements.

Flexible Spending Accounts (FSAs). If the decedent was participating in a health FSA or dependent care FSA at the time of death, you should promptly determine when participation in the FSA ends according to the terms of the plan document. Often the plan document indicates that participation ends as of the date of death. However, the executor should still be allowed to file claims for reimbursements for qualifying expenses incurred during the plan year until the date of death. Recall that most FSA plans have a time limit for filing claims, known as a claims “run-out period”. The executor should be informed of the run-out period and provided enough time to submit claims on behalf of the decedent before the run-out period ends. Amounts not used to reimburse eligible expenses will be forfeited under the “use it-or-lose it” rule that applies to FSAs (unless COBRA is elected, as discussed below).

For a health FSA, COBRA coverage must be offered to eligible dependents under certain circumstances. Most health FSAs qualify for a limited COBRA obligation, which lets an employer only offer COBRA coverage to the decedent’s dependents when the decedent’s account is underspent (meaning that more money has been contributed to the FSA as of the date of death than has been reimbursed), and typically only for the rest of the plan year. Electing COBRA would allow the dependents to be reimbursed for their own medical expenses incurred after the participant’s death through the end of the plan year.

Health Savings Accounts (HSAs). If you sponsor a high deductible health plan (“HDHP”) and arrange (and pay for) a specific HSA custodian to set up individual accounts for your employees (which often includes allowing employee contributions via payroll deductions), consider what to do with the decedent’s individual HSA. Even though most HSAs are not subject to ERISA and an employer generally has limited responsibilities with HSAs relative to other benefit plans, it is still a good idea to raise the issue for the surviving dependents to determine the impact of the individual’s death on that account. Unlike health FSAs, the HSA funds remain the property of the HSA account holder – HSAs do not have the use it-or-lose it feature.

When an HSA account holder dies, any remaining funds are transferred to the individual named as the HSA beneficiary. If there is no such designation, the terms of the HSA custodial agreement will control. If the surviving spouse is named the beneficiary, the account will be treated as the spouse’s HSA after the employee’s death. The spouse maintains the HSA in the spouse’s own name and continues to have access to HSA funds on a pre-tax basis. If someone other than the spouse is named as the beneficiary (e.g., an adult child), then the account stops receiving the tax-deferred benefits of an HSA and the fair market value of the account becomes taxable to the beneficiary. The taxable amount will be reduced by any distributions made after death to reimburse qualifying medical expenses incurred by the account holder prior to death. Claims can be submitted up to one year after death.

Nonqualified Deferred Compensation Plans

Like pension plans and 401(k) plans, the first issue to consider is whether the deceased was vested in their entire benefit or plan account at the time of death, and if not, whether the plan provides for full vesting upon death. If any part of the account balance or benefit is unvested, it should be forfeited in accordance with the terms of the plan. Assuming there is a vested balance, you will need to see if the plan permits beneficiary elections, and if so, whether the deceased designated a beneficiary. If there is a beneficiary designation, payment should be made to this person. If there is no beneficiary designation, then payment should be made according to the plan’s rules for payments upon death. Most plans will provide for payment to be made to the deceased’s estate absent a beneficiary designation. Payment to the beneficiary or the individual’s estate should be made at the time and in the form elected by the deceased and/or as provided in the plan document.

If you have a third-party administrator for the plan, then reach out to them as soon as possible to notify them of the employee’s death and direct any actions they need to take regarding the deceased’s account or benefit under the plan (such as forfeiting balances or starting payments).

Other Unique Issues to Consider

Public Company Disclosure Requirements for Executives

No Form 8-K Requirements. Generally, the termination of an executive officer of a publicly traded company triggers the need to file a current report on Form 8-K with the Securities and Exchange Commission (“SEC”). However, the SEC has issued guidance that provides that a company does not need to issue a current report on Form 8-K to report the death of one of its executive officers.

Form 4 Reporting. The death of an executive does not trigger a Form 4 filing, nor does any transaction with respect to the company’s stock that is initiated after the executive’s death (such as the exercise of an option by the executive’s beneficiary). However, if the deceased executive initiated a transaction before their death that had not yet been reported on a Form 4 or Form 5 (for example, if the deceased sold stock the day before his or her death), then there is a duty to timely report such transactions that occurred before the executive’s death. The deceased executive’s reports can be signed and filed with the SEC by the executor of the insider’s estate or by the issuer or an employee of the issuer. No matter who signs and executes the report, the deceased executive should be named as the reporting person in Box 1 of the report, and the person executing the report on the deceased employee’s behalf should sign the report in their own name, indicating the capacity in which they are signing.

Slayer Statutes

Most, if not all, states have so-called “slayer statutes”, which are statutes that essentially prohibit killers from profiting from their crimes. If you are dealing with a situation where a deceased’s beneficiary is also his or her killer, you may struggle with what to do – pay the beneficiary according to the terms of the plan, or follow the state law? For non-ERISA plans, you can follow state law. For ERISA plans, however, it is not as clear. While there have been various cases involving the right to benefits in light of “slayer statutes”, the U.S. Court of Appeals for the Seventh Circuit became the first circuit court to decide whether ERISA preempts a slayer statute in Laborers’ Pension Fund v. Miscevic. What was their conclusion? ERISA does not preempt a state’s slayer statute and, as a result, the statute prevented the killer from being the beneficiary of the decedent’s ERISA pension benefits. Outside of the Seventh Circuit, there is still some ambiguity. In a more recent case, the U.S. Court of Appeals for the Sixth Circuit elected not to opine on the application of ERISA preemption to a Tennessee “slayer statute,” but instead relied on federal common law to conclude that an individual who murdered a decedent could not collect life insurance proceeds as the beneficiary of the decedent’s life insurance policy. Given this ambiguity, one way to handle it is to put this exception directly in the ERISA plan document, so that, when the time comes, you can follow your plan’s beneficiary rules. But, absent this language, you should consult with legal counsel, or failing all other courses, ask a judge to decide who should be the beneficiary.