Waiving a death benefit

[austin3515]

Two beneficiaries are 50/50.  Participant dies recently (i.e., within a month or so).  Beneficiary A is well off and does not want the money, they want it all to go to Beneficiary B who is not as well off.  Can Beneficiary A disclaim the benefit?

I have the IRS said yes, but one federal court said no, and another one said yes, etc.  And I have heard state law is an issue.  Our volume submitter document (Corbel/Relius) appears to be silent on the issue...

[Lou S.]

I think you can disclaim. You might want to look at code 2518 and reg thereunder for the how someone goes about disclaiming a benefit because I think there are some written hoops and timing requirements that need to be satisfied for the disclaimer to be legally effective and the one disclaiming can't direct where the benefit goes, there are some rules about that as well. I think there is also a lengthy examples section that may or may not have one on point with your situation.

[Peter Gulia]

Nothing in ERISA’s title I requires a plan to include a provision for recognizing a disclaimer.

 

In my experience, the IRS’s tax-qualification reviewers express no objection to a document’s detailed provisions for recognizing a beneficiary’s disclaimer and setting conditions on a disclaimer the plan’s administrator will follow.

 

An IRS-preapproved document might lack those provisions.

 

It is unclear whether one could add those provisions without defeating a user’s anticipated reliance on the Internal Revenue Service opinion letter on the preapproved document.

 

A plan’s administrator must obey the plan’s governing document.  ERISA § 404(a)(1)(D).

 

Although a document might grant the administrator some power to interpret the document, it is a power to interpret ambiguous provisions, not to rewrite the document.

 

An administrator might disobey the plan’s governing document, perhaps considering that the disclaimant is unlikely to sue on the fiduciary’s breach.

 

If an administrator allows a disclaimer, the administrator might recognize only a document that meets conditions under Internal Revenue Code § 2518.  Although that section is in an Internal Revenue Code chapter about gift tax, the Treasury department treats a disclaimer that meets the § 2518 conditions as also effective to remove the refused property from the disclaimant’s income for Federal income tax purposes.  Without that, a payer might face difficult questions about whether to tax-report a distribution paid to someone else as a distribution to the disclaimant.

 

The logic path above assumes neither A nor B is (or is deemed) a surviving spouse.

[austin3515]

But it sounds like you think if its not in the document, it is not permitted?  I will ask the document provider...

[Peter Gulia]

If a client asked me to construe and interpret the document, I would not assume that silence about whether to recognize a disclaimer necessarily precludes recognizing one.

 

Rather, I’d consider the whole document.

 

Also, I might, depending on what one finds in the document, consider Federal common law.

 

Depending on the plan’s text, in considering who is or is not a beneficiary, one might read carefully the document’s definitions and usages to consider the extent to which any of them incorporates by reference 26 C.F.R. § 1.401(a)(9)-4 and, if so, what effect that has.

 

That rule section’s Q&A-4 recognizes a possibility that a disclaimer might affect who is or is not a designated beneficiary, which might matter in how the plan’s provisions apply.

[Luke Bailey]

Disclaimers are pretty commonly accepted in a variety of circumstances, with a variety of plan provisions, but they have to comply with 2518 and the plan document or beneficiary designation has to be set up in such a way that had A predeceased B, A's share would go to B. A cannot direct the money to B.