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Participant in a participant-directed DC plan is doing some estate planning and has inquired as to whether the Plan would allow an individual designated under her durable POA to direct the investment of her Plan account in the event of her "incapacity".

Has anyone ever run into such a situation? What are the "considerations" relative to a qualified plan?

Any and all comments appreciated.

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There are few court decisions stating that a general durable power of attorney does not apply to an ERISA plan unless the power of attorney is specific that it applies to the plan.

I agree with Harwood that the power of attorney should state that the agent may direct the investment of the participant's accounts.

A power of attorney that is effective only in case of incapacity raises the problem that the plan administrator needs to determine whether the participant is incapacitated as defined in the power of attorney. (For that reasons I have never conditioned a power of attorney on incapacity.) It would be better for the power of attorney to give the agent the power to direct investments in all events, not just in case of incapacity.

The power of attorney should release the plan administrator and the plan from all claims relating to the plan administrator acting in good faith at the direction of the agent.

As an estate planner, I have a lot of sympathy for honoring a properly drafted power of attorney.

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Although not directly related to the original question, there

are several cases from different Circuits debating whether

a general waiver in a divorce decree or separation agreement

is sufficient to cancel a beneficiary designation filed by a

participant. Most of the cases indicate that for a plan

to consider honoring such a waiver, the decree/agreement

must clearly and unambiguously identify the name of

the plan and the benefit that is being released.

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Do you have the cites for the court cases you mentioned regarding a general durable power of attorney's having to expressly reference the qualified plan(s) the attorney-in-fact can deal with?

I had always assumed that such a power of attorney was broad enough to cover dealing with a principal's interests in a qualified plan.

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Heileman-Baltimore Local 1010 IBT Pension Plan v. Bullinger, 16 E.B.C. 1024 (D. Md. 1992); and Clouse v. Philadelphia, Bethlehem & New England Railroad Co., 787 F. Supp. 93, 15 EBC 1347 (1992).

The following is from the EBSA's Frequently Asked Questions for Reservists Being Called to Active Duty:

"I am a participant in a 401(k) plan. While I am on active duty, may I give my spouse or another individual the authority to change my investment allocations through a power of attorney or other legal document? Can that individual also apply for a participant loan or hardship withdrawal on my behalf?

"The terms of the plan would generally govern this situation. However, if some employees are permitted to designate individuals to act on their behalf in other contexts when they are away from work, the employer should permit the service member to designate someone to act on his or her behalf also."

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Some IRA agreements allow the owner to specify which persons can be consulted for investment advice and which should not be. The Northern Trust Company has an adoption agreement that is very detailed in this regard.

When doing estate planning the DC participant may want to plan an IRA rollovers to handle some of the problem.

Mary Kay Foss CPA

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Under example 9 of the 404© regs an employee may instruct the plan fiduciary to appoint an investment advisor who is not approved as an investment advisor by the plan fiduciary. The plan admin/ fiduciary has no fidiciary liability to the participant for investment decisions of the advisor, is not a co- fid with the advisor and has no duty to determine the suitability of the advisor. Many employees in self directed accounts sign a limited power of attorney giving the advisor the power to direct investments and provide the advisor with their pin to allow telephone/electronic investing by the advisor without the plan admin knowing that an advisor has been appointed. It does not appear under the dol regs that the fid must consent to the appointment of the advisor by the participant.


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