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Does a plan’s administrator need to know whether a beneficiary is an eligible designated beneficiary?


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SECURE’s revision of Internal Revenue Code § 401(a)(9) distinguishes between an eligible designated beneficiary (a beneficiary who is: the decedent’s spouse, disabled, a chronically ill individual, no more than ten years younger than the decedent, or the participant’s child “who has not reached majority”) and a designated beneficiary who is not so classified.

Imagine a § 401(a) plan provides that every kind of distribution is paid only as a single sum.  And that a retirement distribution or death distribution is paid only as a single sum of the entire account.

Assume the plan’s governing document does not otherwise require a beneficiary to take a distribution any sooner than is necessary to meet § 401(a)(9) to tax-qualify.

With those provisions, is there any plan-administration purpose for which the plan’s administrator needs to know whether a beneficiary is an eligible designated beneficiary?

Or must either kind of designated beneficiary get the death distribution by the end of the tenth calendar year that follows the year of the participant’s death?

 

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter, I hope this is not a trick question. Without having given this a lot of thought, I'll say the plan, assuming it's a DC plan, just needs to (a) know there is a designated beneficiary, and (b) pay within 10 years. The only consequence of being an eligible designated beneficiary is the ability to take over life expectancy, so if the plan does not permit that, it would seem it would not be necessary information for the plan to know that a designated beneficiary is an eligible designated beneficiary.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Luke Bailey, thank you for your good help.  No, this was not a trick question.

I was editing a summary plan description.  Within what’s feasible recognizing ERISA’s many legal and practical constraints, I strive to meet § 102(a)’s goal of an explanation that would “be understood” by an ordinary reader who puts in an ordinary effort.

I wrote the SPD’s explanation of when a nonspouse beneficiary must receive the death distribution in one sentence.

Because I seldom think about a plan’s provisions to meet Internal Revenue Code § 401(a)(9), I wanted to check that I wasn’t missing something.  You confirmed what I was thinking.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Good to know, Peter. As an aside, let me say that although as far as I know the revised 401(a)(9) rules are ultimately coherent (although not without a few issues that will require clarification in regs), the sort of "backhanded" way they stuck in the new rules, only for DC plans, is, at least to me, confusing.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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