Per Stirpes, Does this phrase often appear in retirement plans? Options

[Enda80]

Does this represent a common phrase in retirement plans?

[Mike Preston]

Sure is.

[QDROphile]

For those who are too lazy or unsure to draft in English.

[jevd]

For those who are too lazy or unsure to draft in English.

And many times can't spell.

Many come in as "Per Stripes"

[david rigby]

From http://dictionary.law.com

per stirpes(purr stir-peas)
adj. Latin for "by roots," by representation. The term is commonly used in wills and trusts to describe the distribution when a beneficiary dies before the person whose estate is being divided. Example: "I leave $100,000 to my daughter, Eleanor, and if she shall predecease me, to her children, per stirpes." Thus, if Eleanor dies before her parent, then the $100,000 will be divided among her children equally. A way to make this more clear is to substitute for per stirpes: "…to her children, by right of representation, share and share alike," which is clear to the non-lawyer. If there is no provision for distribution to children of a predeceased child, then the gift will become part of the residue (what is left after specific gifts), and then the grandchildren may not share if there are surviving children of the giver.

This post has been edited by david rigby: Mar 27 2008, 09:31 AM

[Bird]

David, maybe I'm picking nits (or maybe I'm wrong), but the "per stirpes" part of your sample designation is not what assures Eleanor's children of getting her share, it is the contingent clause "if she shall predecease me." The "per stirpes" part is what assures that Eleanor's children's children will get their share even if her child predeceases her.

I've always described it as meaning "per branch" (of the family tree). So if I designate "my children, per stirpes" and one of my children predeceases me, and has a child(ren), that "branch" will get its share. That has always made it instantly clear to a layman.

For those who are too lazy or unsure to draft in English.

FWIW, I like it - I don't know that a layman would understand "to her children, by right of representation, share and share alike" anyway.

This post has been edited by Bird: Mar 28 2008, 07:58 AM

[masteff]

The several large plans I worked w/ only allowed "per stirpes" designations if the participant used our alternative form to draft a custom beneficiary designation. The problem w/ administrating "per stirpes" designations is that it potentially puts a larger burden on the plan in determining the proper beneficiaries.

[Fiduciary Guidan...]

Those that use – or permit a participant to use – a “per stirpes” or “by representation” phrase should be aware that not all States’ laws are the same. (West’s UNIFORM LAWS ANNOTATED includes an explanation and comparison of some of the several different by-the-roots regimes for allocating a class gift; you’d find this in the comments and notes under § 2-106 of the Uniform Probate Code recommended by the National Conference of Commissioners on Uniform State Laws.) To avoid disputes about which rule a participant intended, which rule a plan administrator applies, and which rule a beneficiary could fairly expect, a plan sponsor or plan administrator should take control of defining what the phrase means.

Imagine an illustration of what can happen if a plan doesn’t define this point: A participant lives in New Jersey, and works at a Pennsylvania business location of a Massachusetts corporation that’s an indirect subsidiary of a Delaware corporation that has its headquarters in New York. The plan-administrator committee meets only in New York. The trustee is a New Hampshire trust company. After signing his “per stirpes” beneficiary designation (which he does in Pennsylvania, during a business day) the participant retires, moves to Florida, and makes no change to his beneficiary designation. It happens that among these seven States there are several variations of a per-stirpes rule. Some of the participant’s children and grandchildren, who live in yet more different States, argue different ways to select which rule ought to apply. One claimant suggests Florida’s rule, arguing that, because the domicile at death governs a will’s administration, the participant would have expected and intended Florida’s rule. Another argues for New Jersey’s rule because that’s where the participant lived when he made the designation. Another argues for Pennsylvania’s rule because that’s where the participant signed all of the relevant contracts, including his beneficiary designation and his agreement to participate in the plan. Another argues that any resolution of competing claims necessarily involves the trustee and so calls for New Hampshire’s rule. The plan administrator would prefer to apply New York’s rule to every claim, no matter how strong the contacts with other States are. But the plan document has a “boilerplate” governing-law clause that could be argued to require Delaware law. What a headache! And if applying one rule or another could affect how much or how little a claimant gets, it doesn’t take much imagination to see that a claimant might make the plan administrator’s task at least unpleasant.

If an employer uses a phrase such as “per stirpes” or “by representation” in a plan document (and there are many reasons why a plan sponsor might prefer that a plan preclude any possibility that the plan’s administrator ever could be required to decide a by-representation allocation), the document should define what that phrase means. The plan’s rule should include provisions for defining who is or isn’t a child of a relevant person, which generation is the starting point, whether survivors are counted as of the date of the participant’s death or on the date the claim is decided, whether a division is equal within the survivors or living persons of a generation or equal across some measure of branches of descendants Because a plan other than a governmental plan or a church plan usually is governed by ERISA rather than by any State’s law, nothing outside the plan requires a plan administrator to apply any State’s law. Concerning an ERISA-governed plan, a court should defer to the plan administrator’s prudent selection of a rule, especially if it’s one that can be fairly described as the majority view or the Federal common law of ERISA. But a plan administrator will be in a much stronger position if it applied a rule that’s clearly specified in the plan documents.

If a plan allows a participant to use a phrase such as “per stirpes” or “by representation” in a beneficiary designation (some plans preclude this), the form should warn its maker that the phrase means what the plan says it means. Further, the form should warn that the plan’s rule might differ from the maker’s expectations.

Although it’s easier if you’re not stuck with someone else’s document, even with a prototype plan it’s possible to fix these kinds of provisions.

[Bird]

Maybe if you gave an example of how different states could interpret "per stirpes" differently that would have meant something.

[Guest_named_mjb_*]

Maybe if you gave an example of how different states could interpret "per stirpes" differently that would have meant something.

Why can't per stirpes be interpretated by the plan admin under the applicable state law for the plan that governs non ERISA matters? Every plan I have seen refers to some state law, e.g., NY. Under the Egelhoff case state laws in the state where the participant resided which govern distributions are preempted and plan admin can devise a uniform standard. If there is a problem the parties can file a claim for benefits with the plan or the plan admin can file a suit in interpleader and deposit the funds with the federal court. I dont see how this can be a headache for the plan admin who can always send the case to fed court and let the parties pay their own legal fees as they fight it out.

The beneficary designation should contain a disclosure that beneficary designations will be applied using the law of the state of ___ and recommend that participants consult an attorney before submitting a beneficiary designation form to the plan.

The larger problem is the submission of complex and detailed beneficiary designations prepared by attorneys which place reponsibilities to interpret the beneficiary designation on the plan administrators, determine mrd amounts, act as the agent for beneficaries, notify beneficaries of dates for making elections, etc. Plan adminstrators should reserve the right to reject beneficary designations which are too complex or require the plan adminstrator to act as a fiduciary.

This post has been edited by mjb: Mar 29 2008, 08:05 AM

[Fiduciary Guidan...]

As Bird suggests, the attachment is an example that compares two different per-stirpes regimes.

For mjb's query, a plan could specify a particular rule by stating it in the plan's text (as my earlier post mentioned) or by referring to a particular statute. However, such a provision (even with a clear warning to a participant who makes a beneficiary designation) doesn't assure an absence of competing claims, disputes, and (much worse) litigation. In almost any such litigation, the plan is the real loser because only rarely will a plan collect a reimbursement of its attorneys' fees from the non-prevailing claimants. Even an interpleader costs something.

For the reasons that mjb suggests (and a few more), I write a plan (and its SPD and forms) to treat as not a beneficiary designation a purported designation that fails to specify each beneficiary by name. Likewise, these plans require a participant to specify the percentage that each beneficiary gets.

Further, in my estate-planning practice, any beneficiary designation that I draft carefully avoids asking a plan's administrator to decide or compute any allocation. If something involves more than one taker (or potential taker), I advise naming a trustee as the plan's beneficiary and putting dispositive provisions in a trust document.

[Fiduciary Guidan...]

The attachment.

Attached File(s)

 per_stirpes_illustration.pdf ( 112.92K ) Number of downloads: 126

 

[Guest_named_mjb_*]

Why is the plan a loser in the event of lititgation? That sort of thinking represents a loser mentality because it is the claimants who don't not want to litigate who has the right to benefits for two reasons: because they have to pay counsel to represent them in federal court and because they fear losing in court. My experience has been that the threat of filing an interpleader is sufficient for most claimants to agree to a volunary settlement of their claims. For those that dont settle the plan administrator is always relieved when the interpleader is filed because they are free from dealing with the claims of the opposing parties because the interpleader case ends for the plan administrator when the disputed amount is deposited with the court and the plan is dismissed as a party. I have never had a plan adminsitrator complain about paying for the filing of an interpeleader simply because the plan puts the issue behind them.

[Bird]

the attachment is an example that compares two different per-stirpes regimes.

Wow, I have learned something today. What could be simpler and clearer than "per branch"? I had no idea that socialism had made its way into estate distribution. Very sad, IMO.

[QDROphile]

You prefer antisocialism to socialism?