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Post Death Change to Plan's Default Bene Designation Rules


Guest Grumpy456
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Guest Grumpy456

Dave participates in a 401(k) Plan and is unmarried at all relevant times. He dies on 8/1/2014 with an account balance of $X and without designating a beneficiary. Under the Plan terms in effect when he died, his account balance is paid to his estate. Under the relevant state law, his account balance became a probate estate asset on his date of death. He has no will. Under the relevant state intestate succession rules, Gloria stands to get his entire account balance. If the Plan is amended now to change the default beneficiary from "his estate" to someone else so that Gloria does not get any of it, does Gloria have any legitimate cause of action against the Plan? Also, is such a post-death amendment likely to be challenged by the executor of Dave's estate since it would change a probate estate asset to a non-probate estate asset after Dave's death. Very confusing--please help. Thanks!

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Instead of asking "Who is Sylvia?", one wonders "Who is Gloria?" that the state laws would make her the sole beneficiary of the intestate deceased Dave's estate? State intestate laws do not usually give inheritance rights to unrelated live-in friends, do they?

Why would the employer care, in the least, if it all goes to Gloria (let alone why would the employer want to position itself for almost certain litigation by trying to take any after-the-fact steps obviously intended to cut Gloria out, especially given the fact that Dave is NOT survived by a spouse and that Dave took no steps to arrange for the money to go to anyone else)? If there had been any children, the state intestate laws would have directed the estate to provide most or all of the estate to them, not Gloria.

The plan should just pay the 401(k) balance to the estate and the employer would then be able to wash its hands of what appears (at least by implication) to be a sordid situation.

Always check with your actuary first!

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Grumpy: In the scenario you stated, the estate (and, consequently, Gloria) most definitely would have at a minimum a strong claim, if not an air-tight case. Also, in your scenario, there will be no executor; there will be a court-appointed administrator. That adminstrator may end up being the person who is entitled to receive all or a portion of the assets of the estate, including the plan account balance, and even if he or she isn't entitled to anything from the estate he or she will have a legal fiduciary duty to make sure that the intestate heirs AND DAVE'S CREDITORS receive that to which they are entitled (not to mention the State's entitlement to any death taxes). If I were advising the employer, I would advise that it would be playing with fire to do what you are describing.

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Guest Grumpy456

Thank you for your sharing your thoughts. The question wasn't so much practical issues, but legal ones. Does a death beneficiary have an anti-cutback right after the participant's death? If not, does ERISA preempt state probate law such that a post-death change may be made? I can't seem to find any clear guidance on these two legal questions. Certainly large plans with thousands of participants change their default death beneficiary rules occassionally and I wonder how they treat such a change--probably so that the new rules only apply to deaths occurring after the change (at least that is what makes sense to me).

If you have any thoughts re the cutback and ERISA preemption issues, please share your comments. Thanks again!

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Isn't it the case that once the participant has died with no designated beneficiary under the circumstances described, the money belongs in the estate (just paperwork to get it there)? Clearly, nobody associated with the spoonsor or the plan has any say as to how the estate is to be distributed.

Not a matter of a Section 411 cutback. Once the participant has died, everything is fixed. The plan says the money goes to the estate and federal law (outside of taxation issues) has no bearing on what happens thereafter. The state laws govern, there would be no ERISA preemption etc.

Still don't know why the money going to Gloria is problematic. How would things be different if Dave had named Gloria as his beneficiary under the plan? The effect should be the same. No beneficiary = money goes to estate, no will = estate goes to Gloria. Did Dave die penniless other than the 401(k) account? Presumably anything else that was Dave's is now hers. Who else has a legitimate claim to anything here?

Always check with your actuary first!

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I concur w/ all of My2Cents' post. Who, if not Gloria, and why? What change would they make that differs from the relevant intestate succession (perhaps to include a "step" relation)?

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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If I've got it straight, Grumpy, what you're asking is if a plan amendment to change the default beneficiary provisions could, via a retroactive effective date, create a wormhole that a potential beneficiary could reach through to invalidate a plan's previous determination of a default beneficiary under the old rules. The sequence of events you're envisioning would then look something like this:

* Dave dies 8/1/14

* Plan determines default beneficiary is the estate on 8/15/14, makes payment accordingly

* Plan signs an amendment (effective 1/1/14) to change the default beneficiary provisions on 9/1/14, with the result that Dave's default beneficiary under the new rules is no longer his estate

Ideally, the prudent amendment drafter doesn't use a retroactive effective date and specifically states in the amendment that it kicks in only for deaths that occur after a specific future date. But if you inadvertently introduced a change like this through a retroactively effective restatement? I can see fixing that one getting rather messy.

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