This is a legal question more than a 401(k) question, but our legal rep is out of town and the client needs an answer. Scenario: Son fills out beneficiary designation form, designating beneficiary as 50% Mom and 50% Dad. Dad is witness to Son's signature on beneficiary designation form. Mom & Dad then divorce. Son dies. Mom is executor of Son's estate. Mom thinks because Dad witnessed son's signature, and Dad is a beneficiary, that the entire beneficiary designation form is invalid. Plan document is of course silent on this strange combination of events - it just says that if no beneficiary designation exists, beneficiary is spouse, and if no spouse, beneficiary is estate. Any lawyers out there know if beneficiary also serving as signature witness somehow invalidates the designation?
There is nothing that I know of that prevents a beneficiary from being a witness. Unless there is a factual question as to whether the son atually signed the beneficiary designation (i.e., an allegation that it was forged), or was incompetent or under duress, there's really no issue. I litigated a case on behalf of a pension plan in which one of the beneficiaries was also the witness, and although the plaintiff threw every argument they could think of at us, they didn't even bother to raise this issue. The witness is there for evidence that the person whose name is on the document is really the person who signed it, that he didn't have a gun to his head, that he seemed competent, etc. I don't think you have a problem.
Assuming Son is not married, and has not outstanding QDRO, then provisions of the plan, and procedures of the plan sponsor probably will be the guide. Sponsor might not want to accept a beneficiary designation where the beneficiary is also a witness, but that should be determined at the beginning of the process.
Why are we even discussing witness? Does the plan and/or the sponsor require a witness for any beneficiary designation? Seems that just about any form with the Son's signature on it would be valid. If there is a beneficiary designation that the plan sponsor deems valid, then the "back-up" beneficiary should probably be irrelevant.
Thanks for all the replies! Regarding the witness, this Plan's beneficiary designation form did have a witness line on it, but the form was just recently re-done (in an effort to consolidate the 401(k) beneficiary form with other employee benefit beneficiary forms into one "master" beneficiary form) and the new form has no witness line. We have advised the Plan Sponsor that it is our legal opinion that the beneficiary also serving as witness did not, in and of itself, invalidate the form.
Actually, I did mean our legal opinion. Our firm serves as Plan Attorney for this Plan, but the lawyer handling this Plan was out of town when this question came up. When he got back I briefed him on the topic, told him about my research on benefitslink, and he gave his legal opinion on this, which we passed on to the client.
I know I had the same reaction as Larry M from the information given. (Of course, making assumptions is always risky.) Free401k - is your firm a law firm? I have never heard anyone in a law firm refer to a partner or associate as a "legal rep," which you did in your initial post.
I think multidisciplinary practice is inevitable, but I don't believe that it is here yet. That is why the Big 6 is hiring more lawyers than anyone but still calling them consultants. Your firm may have looked into this already, but this issue has caused a heated debate within the ABA.
Our firm is a small 401(k) "boutique," providing ERISA admin/consulting/legal for our clients. Most of our Plans are 401(k) Plans, and we do the recordkeeping, consulting and Plan Attorney work for these plans. Maybe "legal rep" wasn't the best choice of words in my initial question - I was talking about the legal rep for this Plan, in other words the lawyer in our firm who is the Plan Attorney for the Plan in question. He was out of the office so I was trying to gather some information. Sorry about the confusion and thanks for all the responses.
I'm not an attorney, but it was my impression that you cannot be in the practice of law if you are in some other business, such as accounting, TPA, etc. Certainly state laws vary.
My consulting background wants to scream that anyone who is in TPA/consulting relationship with a plan and/or plan sponsor is not, and cannot be, also the attorney for the plan or the plan sponsor. And it does not matter if the individual employee is an attorney.
It's been a few years but I think I remember this--a lawyer cannot form a partnership with an non-lawyer if any of the activities of the partnership is the practice of law. You also can't share fees with a non-lawyer. I know that this may vary by state and that there has been lots of consideration for modifying this but most of this is still true. Perhaps the attorney is in-house counsel for the consulting firm?
I think that if you are holding yourself out to give legal advice to clients there may be trouble. If, however, you maintain that you are providing consulting services and the lawyers merely assist the consultants then you have less of a problem. I believe the applicable model rule of professional conduct states:
Rule 5.4 PROFESSIONAL INDEPENDENCE OF A LAWYER
(a) A lawyer or law firm shall not share legal fees with a nonlawyer. . . (with narrow exceptions).
(B) A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.
(c) A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.
(d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:
(1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;
(2) a nonlawyer is a corporate director or officer thereof; or
(3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.”
Jeez, I never knew you guys cared so much! We are a very small firm (five people), the principal of the firm is a lawyer who has specialized in employee benefits law his entire career, and he also provides recordkeeping services in addition to his legal and consulting work for his clients. The rest of us here are support staff. We are not a TPA firm who has partnered with a lawyer or lawyers to share fees.