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EBECatty

One Time/Form of Payment - Designated Beneficiary

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Plan subject to 409A says executive will get five annual installments upon separation from service. If the executive separates and begins payments, but dies before receiving all five, the plan explicitly says the designated beneficiary will continue receiving the remaining annual installments in the same manner the participant would have received them. There is no election at any point. 

The plan further says that if no beneficiary designation is on file the remaining payments will be paid in one lump sum to the executive's estate. 

It seems to me that this would violate the one form of payment requirement by toggling the form of payment based on whether or not a beneficiary has been designated. Would further allow for manipulation, e.g., executive is terminally ill and wants survivors to have lump sum, so revokes the existing beneficiary designation and effectively elects lump sum acceleration instead of remaining installments.

Appreciate any thoughts.

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The provisions seem very practical.  You continue payments to a named beneficiary, but if it goes to the estate, drawn out payments don't help with estate administration/wind-down.

That being said, I agree it's not consistent with 409A precisely for the reason you lay out.  I wonder if you could argue that revoking a beneficiary designation is akin to a change to the form of payment upon death, so as long as there is a 12 month delay before the revocation becomes effective the provision works? Yeah, who wants to do that...

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