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Who is the beneficiary?


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I think I know the answer to this but was hoping to hear if that is correct:

Participant enrolls in a 401k plan in 2016 and names his wife as beneficiary and son as contingent beneficiary.  Lump Sum only distribution, no J&S.
The wife passes away and then, the participant passes away on 2020.

The participant had remarried (not sure when) before he passed away in 2020.

A new beneficiary form was not completed.

Is the son still the beneficiary since he was named as the contingent beneficiary on the beneficiary form that is on file?  Or is it the new spouse, even though there is no beneficiary form stating her as the beneficiary?

I think the new spouse is the beneficiary.  Any comments are appreciated.

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Umm ... the plan document will answer this question.  Look for the definitions of "beneficiary" and "spouse".

Hint: your "not sure when" comment might be important.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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If one assumes the plan is ERISA-governed:

The plan’s administrator might consider whether the plan provides or omits a one-year-marriage condition for a spouse to get whichever ERISA § 205 right—qualified preretirement survivor annuity, or whole account—the plan provides.

ERISA § 205(f)(1) states:  “[A] plan may provide that a qualified joint and survivor annuity (or a qualified preretirement survivor annuity) will not be provided unless the participant and spouse had been married throughout the 1-year period ending on the earlier of— (A) the participant’s annuity starting date, or (B) the date of the participant’s death.”

The statute does not state, at least not directly, that a plan may provide such a one-year-marriage condition to limit a spouse’s ERISA § 205(b)(1)(C) right to get the participant’s account.

But consider this rule:

Q-26:     In the case of a defined contribution plan not subject to section 412, does the requirement that a participant’s nonforfeitable accrued benefit be payable in full to a surviving spouse apply to a spouse who has been married to the participant for less than one year?

A-26:     A plan may provide that a spouse who has not been married to a participant throughout the one-year period ending on the earlier of (a) the participant’s annuity starting date or (b) the date of the participant’s death is not treated as a surviving spouse and is not required to receive the participant’s account balance.  The special exception described in section 417(d)(2) and Q&A-25 of this section does not apply.

26 C.F.R. § 1.401(a)-20/Q&A-26 https://ecfr.federalregister.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRa9e579304da97df/section-1.401(a)-20.

The Treasury department’s rule interprets not only the Internal Revenue Code of 1986 but also ERISA § 205.  Reorganization Plan No. 4 of 1978 (Aug. 10, 1978), 43 Fed. Reg. 47,713 (Oct. 17, 1978), 92 Stat. 3790 (1978), § 101.  See also 5 U.S.C. App. 237.

But a court defers to an agency’s rule only if the statute is ambiguous and the rule is a permissible interpretation of the statute.

For a situation of the kind Santo Gold describes, a plan’s administrator might consider these steps (with others):

1.    Does a governing document state a one-year-marriage condition?

2.    If so, does the document’s provision comport with ERISA § 205?  Or must the administrator ignore the purported provision because it is contrary to ERISA’s title I?

3.    If the plan provides a one-year-marriage condition, how does it apply to the participant’s and the spouses’ facts?

BenefitsLink neighbors, do the designers of IRS-preapproved documents give a user a choice about whether to state or omit a one-year-marriage condition?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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While far from a scientific sample, I checked an IRS-preapproved document a client uses.  That set’s adoption-agreement form has nothing to specify that a one-year-marriage condition is provided or omitted.  The basic plan document has no mention of a one-year-marriage condition.

Has anyone seen a § 401(k)/profit-sharing document that:

allows a user to specify a one-year-marriage condition?

provides a one-year-marriage condition, without giving the user a choice to omit it?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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The only comment I wanted to make was that the answer could be "It depends on how the spouse was designated." if the participant named a specific individual, such as "Mary Moss, my wife" as sole primary beneficiary and "Peter Moss, our son" as contingent beneficiary and the plan does not contain a clause that spousal beneficiary designations are automatically revoked upon divorce, then it would seem that Peter should get at least one-half and Spouse 2 the other half. If the designation merely stated that "my spouse" was the primary beneficiary and that Peter Moss was contingent beneficiary, I would tend to think Spouse 2 would be entitled to the entire account, assuming that there either was no one-year of marriage requirement or that the requirement was met at the participant's death.

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On 1/14/2021 at 4:46 PM, david rigby said:

Umm ... the plan document will answer this question.  Look for the definitions of "beneficiary" and "spouse".

Hint: your "not sure when" comment might be important.

I want to second David Rigby's comment above. Get that information, and you will have the answer.

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Peter, yes I have seen Adoption Agreements that have an option for the employer to choose the 1-year marriage rule and I have seen at least 1 attorney drafted document that contained the 1-year marriage rule as the default, with no option to remove it.

But in my experience it is very unusual to see a plan with the 1-year marriage rule in force. 

I think generally in the scenario described above, the beneficiary is going to be the spouse.  Hence the reason that TPAs are always telling employers to make sure they tell their participants to complete new beneficiary forms any time there is a death, divorce, remarriage, etc.  I think there might be some scenario where  it would be split 50/50 between the spouse and the son, as suggested by another poster above, but I am not sure on the rules for when that comes into play.

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ACK, thank you for sharing the information.

I’ve never been faced with that choice.  But if I were, I suspect I’d likely recommend against providing the one-year-marriage condition.  It seems a plan-administration complexity.

An exception might be if the plan’s sponsor is owner-dominated and the owner herself wants the condition.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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