Jump to content

Durable Power of Attorney


Recommended Posts

Guest andmik

Perhaps this is as simple as it seems, but none of the reference materials specifically addresses the topic.

Plan sponsor is presented with what appears to be a validly notarized Durable Power of Attorney (POA) and the appointed Power of Attorney is requesting paperwork for full distribution of the participant's account.

1. Plan sponsor in inclined to accept the POA as it does not appear Federal Law preempts this document and I would agree. Any point of concern from your perspective?

2. Would you require check payable to "POA Name, FBO Participant"?

3. Since POA has full power, they can change anything on the participant's account, including requesting PIN and mailing address, would you agree?

Thanks in advance for your insight.

Sincerely,

Andmik

Link to comment
Share on other sites

There are two issues present here:

1. Whether POA is valid and can be used for purpose of transferring benefits. Some states, e.g., NY specifically permit a holder of a power to make decisions regarding retirement benefits. But there is no requirement that another person accept the power. What state does participant live in?

2. Should plan accept POA? there is nothing in ERISA that permits or prohibits the use of a poa by a participant. However, one could infer from certain language regarding distributions that only a participant/spouse can give consent to distributions. I guess the question is whether the POA is valid and where are the funds going. I would be very wary if funds were to be transferred to an account/ Tax ID in the name of any other person but the participant. Also the transfer of funds to another person is a taxable event to a living participant.

Some financial institutions accept POAs for IRAs but require that the IRA owner indemnify the custodian for any liability/ taxes which result. I think the question is what is in it for plan sponsor to accept the POA? It seems that there are only risks and no rewards.

mjb

Link to comment
Share on other sites

Guest andmik

MJB,

Thanks for your reply. The recipient of the POA has accepted. Although I appreciate the factors that the plan sponsor needs to weigh before acting on the POA, they are concerned with the failure not to act on a document that appears valid on its face, without the protection of ERISA preemption, and having a problem with a valid claim by a POA and the participant for failure to act prudently on a valid legal document without a preemption protection.

Given that a plan sponsor could rely on this type of POA if a participant had died and left the account balance to a minor, it seems logical that they should be able to rely on this document.

I think your other point is valid as well in that the check should be made FBO, and the taxation will be to that of the participant's Tax ID#.

Thanks Again,

Andmik

Link to comment
Share on other sites

Guest halka

The whole POA issue is very murky with respect to EB and other estate planning documents. I hope others will share their thoughts. POAs are creatures of state law. In some states, a Durable POA is effective only upon incapacity of the grantor of the power. So, getting a release/verification from participant is not possible. Seems the state laws of the Plan/Trustee (vs. the participant's domicile) would be applicable to interpreting the POA?? If you conclude the POA gives the attorney-in-fact ALL the participant's rights, are you going to feel comfortable having the beneficiary designation change from "my children equally" to "X, a close friend" (of the attorney-in-fact). I agree w/ mbozek.... there is virtually no reward or guidance for the trustee, but lots of risk.

Link to comment
Share on other sites

I dont get your point about st. POA law not being preempted. ERISA preempts all state laws that relate to an employee benefit plan and one could say that the statutory requirements for distributions under ERISA 205/206 are the exclusive requirements for electing a distribution of benefits. Note: Last year the US supreme ct held that a Wash St. law that automatically removed a spouse as a beneficary from an ERISA covered plan was preempted. I dont know how the holder of a POA can have a valid claim if ERISA does not authorize such a distribution. The plan can act in its own discretion but it could not be forced to make such a distribution.

mjb

Link to comment
Share on other sites

There may be more, but the only thing I remember in the regs about someone giving consent for someone else is in the 401(a)(20) regs which mentions a spouse being "incompetent"

Q-27: Are there circumstances when spousal consent to a

participant's election to waive the QJSA or the QPSA is not required?

A-27: Yes. If it is established to the satisfaction of a plan

representative that there is no spouse or that the spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetnent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Similar rules apply to a plan subject to the

requirements of section 401(a)(11)(B)(iii)(I).

Link to comment
Share on other sites

Guest andmik

I want to thank everyone for their responses.

MJB, I think your suggestion of caution and weighing the "risk/reward" will be readily accepted by the plan sponsor. I will caution them to move forward only after seeking advice from counsel due to the sensitivity of the subject.

Thank you,

Andmik

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...