In a Community Property state (California), a husband contracts with his wife to give his son 40% of the husband's government plan retirement benefits should the husband die first. The husband dies. Is the wife required to give the son 40% of the benefits? or may she keep all the benefits since the husband did not otherwise will it away?

Hate to answer a question with a question, but, here in California I believe you would need a wife's consent to such a "contract" giveaway. If she has given her consent, then there should be no problem for the Plan Administrator in carrying out the Beneficiary designation. If not, there may be a problem obtaining consent after death.
What are the facts of the case?

Actually, I would not think it was the plan administrator's job to worry about this. The plan terms presumably state that the money goes to the beneficiary named by the employee, and that is clearly the wife. It is clear from case law that the plan administrator is not obligated to consult other documents (e.g., a will or, in this case, a contract) which may purport to name other beneficiaries. Thus, the plan administrator should pay out to the wife.

The wife then has a separate contract obligation to pay out 40% to the son. If she fails to do so, the son could sue her. But the issue would still be between her and her son, not the plan.
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