Corrective Distribution to Deceased Participant

[EBECatty]

If a plan needs to make a corrective distribution due to a 415 violation in a prior year, but the participant has since died, to whom is the distribution payable? The participant's estate? And is it reported on a 1099-R as Code 4?

EDIT: Code 4 in addition to Code E. Or just E? Still not clear to whom it is payable.

[Larry Starr]

1 hour ago, EBECatty said:

If a plan needs to make a corrective distribution due to a 415 violation in a prior year, but the participant has since died, to whom is the distribution payable? The participant's estate? And is it reported on a 1099-R as Code 4?

EDIT: Code 4 in addition to Code E. Or just E? Still not clear to whom it is payable.

Need to know if the distribution is being made in the year of death or a subsequent year.

[EBECatty]

415 violation was in 2018; participant died in 2019; distribution would be made in 2020.

[Larry Starr]

45 minutes ago, EBECatty said:

415 violation was in 2018; participant died in 2019; distribution would be made in 2020.

I believe that would be payable to the estate.

[EBECatty]

Thanks--that was my reaction as well.

Any thoughts on 1099-R code. Per the instructions, code 4 doesn't get "used with" Code E, and Code E says no other codes are "used with" it. But these seems to pretty clearly fall under both of them. If forced to pick one, I suppose I would use E. 

[Bird]

I'd pay it to the beneficiary if there is one.  I don't see why the reason for the distribution makes a difference as to where it is paid.  And I'd use Code E.  Obviously they didn't contemplate the situation so you just do what is reasonable.

[EBECatty]

48 minutes ago, Bird said:

I'd pay it to the beneficiary if there is one.  I don't see why the reason for the distribution makes a difference as to where it is paid.  

I think there's a potentially important distinction. EPCRS says to treat the corrective distribution as described in Rev. Proc. 92-93. Section 3, dealing with distributing elective deferrals following a 415 violation, says the payment is a "corrective disbursement" and not a "distribution of accrued benefits" and therefore not subject to spousal consent, 72(t) penalties, and other code "sections governing distributions of accrued benefits."

Say the participant died, leaving his/her estate to a surviving spouse, but named a child as the plan's beneficiary. For a "corrective disbursement" that is not a "distribution of accrued benefits," I think the proper payee is the participant's estate (and flowing through to the surviving spouse). 

[Peter Gulia]

Finding a person who has obtained authority to receive a payment for a decedent’s estate might slow down paying a corrective distribution.

 

Many people have so much property, including bank accounts and investment accounts, transfer by beneficiary designations, transfer-on-death, and other non-probate means, that no one seeks an appointment as a decedent’s personal representative, or even to use a small-estate regime.

[Bird]

2 hours ago, EBECatty said:

Say the participant died, leaving his/her estate to a surviving spouse, but named a child as the plan's beneficiary. For a "corrective disbursement" that is not a "distribution of accrued benefits," I think the proper payee is the participant's estate (and flowing through to the surviving spouse). 

You could be right, I don't really know for sure but I'm not convinced.  As Peter noted, there might be a practical aspect to this that would make a payment to the estate difficult at best, and if it's not a huge amount, would be inclined to do the easier thing.

[Luke Bailey]

I agree with EBECatty. The beneficiary's benefit is determined under the plan as a survivor benefit if DB, the account if DC. This is an amount that cannot be part of the benefit or stay in account. It belongs to the estate, just like an unpaid wage check or bonus. Also, just Code E. You are not paying it on account of death. You would pay the same amount at same time if participant were alive.