can a person with power of attorney change a beneficiary designation

[Guest tcaldwell]

We have had an issue come up where a participant is gravely ill but has not yet passed. The participant has designated her sons as 50-50 beneficiaries of her 401(k) account balance. Son1 also has power of attorney over the participant's affairs. The participant is not yet incapacitated and has indicated that she does not want to change the beneficiary. Son1 wants to change the beneficiary with his power of attorney to being 100% payable to him because he believes Son2 to be unworthy. The document makes no mention of accepting a beneficiary from anyone except the participant. Should the plan administrator accept the instruction from Son1, who again has power of attorney over the participant's affairs? Anyone with insights into this situation would be appreciated.

[Harwood]

We take the attitude that a blanket power-of-attorney is not sufficient.

We only honor a power-of-attorney that specifically cites that actions may be taken in an ERISA qualified plan - such as beneficiary changes and consenting to distributions.

We could be wrong.

[FundeK]

I hate to keep quoting the ERISA Outline book (actually I don't), but I found this in Chapter 6: Plan Distributions - Section V (Death benefits)

1.c. Power of attorney. If a person holds a power of attorney (POA) with respect to a plan participant, can the POA change the participant's beneficiary? This was the issue in Clouse v.Philadelphia, Bethlehem & New England Railroad Co., 787 F.Supp. 93 (E.D.Pa. 1992). The case involved a general power of attorney. The court concluded, in reliance of Section 37 of the Restatement (Second), Agency, that a general power of attorney did not authorize the POA to change the beneficiary designation. A more specifically-drafted POA was needed. Also note that the terms of the plan document need to be consulted to ensure that the plan's procedures for changing beneficiaries are followed.

You may have already seen this, but I thought I would throw it out there anyway.

[mbozek]

Some states have POA forms which permit the agent to execerise rights over retirement benfits and IRAs. However there is a short answer- If the employee does not want to change the beneficary designation she should revoke the POA by notifying the agent of the revocation. End of issue.

[k man]

be careful to review the power of attorney document carefully. i had a case where the POA document specifically stated that the POA would have the power to designate the beneficiary but not to change a previously designated beneficiary.

[TPApril]

On the topic of Power of Attorneys - 55 year old single (no children) participant in a DB plan in car accident and is now on critical life support. There is no POA. Her sister has asked how she can be authorized to become an alternate beneficiary to receive benefits the 1st of next month. or have participant elect a 10 yr certain benefit. No issue of any other family member or contesting. I'm not aware that there is a way to provide such a benefit but wondering if there is. If there was, the next question would be what if she dies prior to the benefit start date.

[spicerfam]

I agree with the other posts; don't allow the change if it is not specifically authorized in the power of attorney.

[TPApril]

well there is no POA for the single participant. Plan Sponsor in question is trying to find a way to provide a benefit on behalf of a beloved longtime employee.

[david rigby]

On the topic of Power of Attorneys - 55 year old single (no children) participant in a DB plan in car accident and is now on critical life support. There is no POA. Her sister has asked how she can be authorized to become an alternate beneficiary to receive benefits the 1st of next month. or have participant elect a 10 yr certain benefit. No issue of any other family member or contesting. I'm not aware that there is a way to provide such a benefit but wondering if there is. If there was, the next question would be what if she dies prior to the benefit start date.

Might not be relevant. Check the definition of beneficiary in the plan document. Most documents have a hierarchy (for example, spouse first, if no spouse then children, if no children, then siblings, etc.)

Often such definitions use "participant's estate" as the last option. It's possible this sister could be beneficiary of both (plan and estate), but it might be easier if she fits the plan's definition first.

[QDROphile]

Fiduciaries get in trouble when they venture beyond established duties and plan terms to "help" participants.

[jpod]

You haven't told us what happens if participant dies without having done anything.

Aside from that, I once had a similar situation with a DB plan. Participant was single and there was no death benefit for a single person. The employer wanted to be as generous as it could. The advice was don't monkey around with making elections on behalf of a participant as if he had retired and elected a form of benefit. In place of that, the employer can amend the plan to achieve the desired result without putting itself in the shoes of a fiduciary. Generally speaking you only have this flexibility if participant is a NHCE.

[TPApril]

jpod - there is no benefit in the plan to single participants who die prior to benefit start date. Plan sponsor has no intention to falsify documents. They thought about amending plan until they were informed of an increase in liability of adding such a benefit.

[jpod]

An amendment to provide a death benefit for one individual who would be named in the amendment would increase funding obligations moving forward?

[My 2 cents]

An amendment to provide a death benefit for one individual who would be named in the amendment would increase funding obligations moving forward?

NHCE or not, it would be inappropriate for a plan sponsor to adopt a death benefit for an unmarried deceased participant without providing the same death benefit for every single similarly situated participant in the future. Things are just not done that way!

Also, with respect to the original post, does anyone else agree with me that Son#1 cutting out Son#2 based on Son#1's assessment that Son#2 is "unworthy" represents abuse of authority as a Power of Attorney? Aren't the POAs supposed to exercise their authority on what is virtually a fiduciary basis?

[jpod]

Whether it is inappropriate or not is in the eye of the beholder, but absent evidence of discrimination on the basis of race, sex, etc., there is nothing illegal about it.

[david rigby]

An amendment to provide a death benefit for one individual who would be named in the amendment would increase funding obligations moving forward?

Very likely, yes. Such payment would create additional experience loss that must be amortized.

Plus, the issue raised by My2Cents about whether such plan change may be extended to other participants.

[jpod]

Interesting. So, I gather that if the participant was capable of "retiring" and electing a 10-year CC annuity there would be no experience loss. But, if the plan is amended to pay his estate a lump sum equal to the present value of what the payments over 10 years would have been if he dies before retiring there is an experience loss? I'll take your word for it.

[My 2 cents]

Interesting. So, I gather that if the participant was capable of "retiring" and electing a 10-year CC annuity there would be no experience loss. But, if the plan is amended to pay his estate a lump sum equal to the present value of what the payments over 10 years would have been if he dies before retiring there is an experience loss? I'll take your word for it.

Consider the death benefit that would result from the amendment to be a benefit liberalization, not an experience loss. Even if the death benefit amendment is set up to only apply to this one individual, it will result in plan costs going up (a valuable death benefit versus the participant's benefits under the plan being entirely forfeited).

Let this be an occasion for the sponsor to think about whether it is just and right to not provide death benefits under the defined benefit plan when the participant is not survived by a spouse. Sure, the law does not mandate it, but many plans do provide death benefits commensurate with the QPSA in the event of the death before benefit commencement of an unmarried participant. If the sponsor's conclusion is "Yes, but...", then perhaps the sponsor could provide something to the heirs of the "beloved" non-married participant from corporate assets and leave the plan as it is, but the sponsor may recognize from the current situation that they are not comfortable with denying any plan death benefits when there is no surviving spouse.

[jpod]

Oy. TPApril is trying to help a client deal with a traumatic situation. Neither she nor her client needs a lecture about defined benefit plan design.

[My 2 cents]

Oy. TPApril is trying to help a client deal with a traumatic situation. Neither she nor her client needs a lecture about defined benefit plan design.

Agreed that no lecture about defined benefit plan design is needed if the situation will be resolved in a way that does not involve the defined benefit plan. If it is decided to use the defined benefit plan to resolve the situation, then the plan sponsor needs to consider appropriate ways to do so and the resulting consequences. The pension plan assets are not corporate funds to be dealt with according to the sponsor's wishes.

[TPApril]

Actually, lectures are appreciated - i'm an eternal student...

Plan sponsor will not be doing anything in this regard. They have no interest in amending the plan for just 1 person, as they see that as a greater unfairness, and they have no interest in increasing liabilities since as it is they are annually defending the plan's active status.

[jpod]

Agree that they are not corporate funds. Don't agree that the Plan Sponsor can't do what it wants with those funds as long as what it ends up doing is providing a new benefit under plan by means of a plan amendment.

[jpod]

APApril: fair enough. However, your second post said "Plan Sponsor in question is trying to find a way to provide a benefit on behalf of a beloved longtime employee." Is the participant eligible for early retirement? If so, what if the Plan was amended to make the 10-year CC the default, normal form of benefit for just this one participant, and then terminate her before she dies? Ok, I'm done.