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Funeral Home as Designated Beneficiary


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The plan defines beneficiary as a person or other entity designated by the participant who is or may become entitled to benefits under the plan. The plan has interpreted "other entity" to mean an estate, trust or charitable organization. The plan received a beneficiary designation form from a participant naming a funeral home as his beneficiary. I think the plan should reject it based on its past practice of interpreting "other entity" not to include a for-profit business, but does anyone know if the Internal Revenue Code or ERISA contains any prohibition on naming a for-profit business as a beneficiary for a retirement plan? Any help would be appreciated.

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I am not aware of any such prohibition. On what basis was that interpretation considered a reasonable interpretation? An unreasonable interpretation is susceptible to significant risk no matter how consistently it's been used.

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If the plan's administrator construes or interprets the meaning of "person or other entity", the administrator might consider that, absent special definitions, customary legal usage includes in the meaning of "person" not only a human being but also a non-natural person, such as a corporation.

Moreover, ERISA includes a definition for "person". Even if the plan's text doesn't compel following or using that definition, an interpretation that is consistent with ERISA might be stronger.

And while it is a separate task, if the plan's sponsor wants to preclude a participant from naming a for-profit person as the participant's beneficiary, an amendment or other revision of the plan could make clear what the plan does not allow.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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  • 4 years later...

I have a similar issue with a for-profit entity named as the primary beneficiary for a deceased participant and the "remainder" of the assets to go to the children.

 

In this example, if the funeral home is the beneficiary, who pays the taxes on the distribution? Should the payment be treated as a cash distribution to the deceased participant and the payment be grossed up 20% to allow for a 20% mandatory withholding with 80% paid to the funeral home? The Form 1099-R names the deceased participant as the payee??

 

Other suggestions?

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1 hour ago, JustMe said:

I have a similar issue with a for-profit entity named as the primary beneficiary for a deceased participant and the "remainder" of the assets to go to the children.

 

In this example, if the funeral home is the beneficiary, who pays the taxes on the distribution? Should the payment be treated as a cash distribution to the deceased participant and the payment be grossed up 20% to allow for a 20% mandatory withholding with 80% paid to the funeral home? The Form 1099-R names the deceased participant as the payee??

 

Other suggestions?

The one and only time I paid a for profit corp was about a year ago.   (The why is a story I will skip.  The plan's attorney said pay the company. )   We got the company's EIN.   We paid the distribution.  I don't recall if with withheld 20% or not.  We sent the 1099-R to the company.   It was their problem after that.   In this case the company wanted the money.   Not sure in your case the company wants the problem.  

I can't cite anything to support what we did.

But the company is paid.   They will have to pay taxes and the 1099-R was filed.  

The only question I am not addressing is can a person name such an entity as a beneficiary.  

Once you get past that part pay the company and issue a 1099-R.  It is their problem.    You did what the form said.   You issued a 1099-R as the law requires.   The company can report the income how they want.   Maybe we thought it through too little but I am not sure you aren't over thinking it.   Not sure why TPA's always think it is their job to work out everyone else's problems in these situations. 

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