A retirement plan participant can designate a beneficiary other than a spouse, but a waiver is required. Many plans have specific provisions that provide for the order in which distributions will be made in the event a specific beneficiary is not designated. For plan administrators, the rules about beneficiary designations require strict adherence to the plan documents, which can mean that those who think they have a right to benefits may not in fact have those rights and that leads to litigation.
Such was the case in Herring v. Campbell, a recent case decided by the Fifth Circuit Court of Appeals. In this case, a plan participant designated his wife as his primary beneficiary with no secondary beneficiary. His wife died before he did, but he made no other beneficiary designation. When he died, the plan distributed his account balance in accordance with the plan rules, to his surviving siblings. Of course, he happened to have step-children, who sued the plan administrator for not giving them the money. The plan rules provided that in the absence of a beneficiary designation, surviving children get a the distribution before the deceased participant's siblings.
The Court upheld the plan administrator's interpretation of the definition of "children" to mean biological or legally adopted children. Step-children did not meet this definition so they were not entitled to the benefits. The step-children argued that they had been "equitably adopted" but the Court found that this concept applies only to those seeking to require a parent to recognize a child, not a benefit plan making distributions. So in the end, the Court decided that the plan had properly distributed the benefits to the siblings and excluded the step-children.
So when considering the distribution of benefits from a participant's account, the participant certainly can designate step-children as beneficiaries by an affirmative designation. And step-children can become "children" through adoption, which would give them "child" status when considering plan distribution rules. But, as we see in this case, unless a "child" clearly satisfies the plan's definition of beneficiary (that is if they are in fact children under the definition of the plan), they will not be entitled to a distribution as a beneficiary.