Albert F

Peter is correct about deferring to the plan terms. When plans are confronted with estate beneficiaries, they often want to pay to the estate fiduciaries, who may be determined by local law. Such law may provide for summary procedures that permit specified persons to become the personal representative of the estate. In those cases the small estate affidavit goes to the court which issues a certificate of authority that the plan may defer to in the same way as it would defer to letters testamentary for executors and letters of administration for other personal representatives. See e.g. NY SCPA 1304

Dear Peter, David is correct, it would be prudent to check the extent, if any, to which account balances may affect the administration fees, including rollover fees, all of which I suspect will be relatively small Regardless of whether there are any rollovers, I would verify who will be responsible for maintaining the plan documents after the accounts are moved to Ascensus, and if the documents will change, check whether there will be any substantive changes in the plan documents, including beneficiary terms. If so, some additional work may be required to keep the designations consistent. The plan is not one-person plan, thus not an ERISA plan. I would check local law to see if there are significant differences in rights of your friend’s creditors depending on whether the funds are in an IRA or in the plan accounts. Best wishes, Albert

Dear Lucky 32, Let me try to reconcile Peter and Lou’s comments. The regulation question pertaining to optional benefits Peter referred to was introduced by 53 FR 26058 (July 11, 1988). That regulation provided a transition permitting the elimination of optional benefits generally on or before first day of the first plan year after January 1, 1989, 26 C.F.R. § 1.411(d)-4, Q & A 8(c)(1) and 9(c)(2)). Thus, these optional benefits could once be eliminated, but it is no longer possible to do so. Albert

Dear Cathyw, My practice when this occurs is to recommend using the VCP rather than wait for an IRS audit, which I admit is quite rare. Before doing the filing, I seek all the interim amendments, which is usually feasible when the original document provider is still in place. If the provider has changed, it is often not feasible to get all the documents. In such case I would include an explanation of the efforts that were made in the filing. Katie is correct different reviewers require different good faith efforts, but my sense is the preference is for all interim amendments, so I prefer to present to frame discussion with our good faith efforts rather than let the reviewer frame that discussion. I would not do a pre-submission conference, because they are not binding, so you will not learn whether the reviewer assigned to the VCP filing will demand all or some of the amendments or the requisite due diligence. Pre-submission conferences are most appropriate when you want to know whether a VCP submission will be entertained, not when you are more interested in the precise terms of the required correction. Good luck. Best wishes, Albert

My remarks about actuarial equivalents only apply to defined benefit plans. There is no similar provision for defined contribution plans which also need not worry about qualification failures stemming from excessive benefit distributions

Let me add some observations to the above very thoughtful analysis. Under the ECPRS and general fiduciary principles administrators of tax-qualified plans, such as the one Mr. Gulia described, should establish and maintain administrative practices and procedures to ensure that these plans are operated properly in accordance with the Code’s qualification requirements. Those requirements include the requirement that such plans make the Code §401(a)(9) required minimum distributions. Thus, qualified plan administrator should have a procedure in place to determine annually which plan participants, if any, are required to receive RMDs and to make distributions to any such individuals. This procedure should include verifying whether any participants are in excess of the applicable RMD age, which as Mr. Zeller observes depends on the participant’s birthday. If the plan provides that payments are made regardless of whether the participant retires, the administrator must act to make such payments to comply with the plan terms, which is also a plan qualification requirement. Such plan provisions do not violate Code §401(a)(9). If the plan provides, as described above, that the plan payments need not be made until the participant retires, there would have to be another plan provision providing that payments must begin to be made at the applicable RMD age if the participant was a 5-percent owner in such year. The plan administrator would then have to determine if this exception governs. Many plans, however, take an intermediate approach and provide that plan distributions must begin on the April 1 following the year in which the participant reaches age 70.51 regardless of whether the employee has retirement. Otherwise, IRC § 401(a)(9)(C)(iii) requires that the annual benefit be increased to the actuarial equivalent of the benefit that was accrued as of the date the employee attained age 70.5. There may be tax qualification issues with plans allows such increases without limit. In particular, IRC § 401(a)(16) prohibits annual benefits in excess of the Code §415(b) limits of 100% of the participant’s high average compensation. Thus, the administrator may wish to compare Jane’s annual plan benefit with her high average compensation. 1 To avoid actuarial equivalent increases, the payments would have had to begin on January 1, 1997, if the employee attained 70.5 prior to January 1, 1997. See Treas. Reg. §1.401(a)(9)-6-A-7). Best wishes, Albert

You may want to look at the August 2022 discussion of a similar question. Best wishes, Albert

Dear Centerstage, Treas. Reg. 29 CFR § 2510.3-3 would appear to provide that the one-person corporation you represented and that Trisports represents is not an ERISA plan. Thus, I don’t understand how the federal courts has jurisdiction to decide anything about the plan. If court intervention is required, it would thus appear only the state courts will have the requisite jurisdiction. Which court depends on the state, although the fact that the decedent’s estate is trying to obtain the pension benefits suggests that Peter is correct and the court that appointed the executor will be the appropriate court. I remain dubious about going to a court to appoint the plan administrator and trustee, which right is almost certainly granted to the executor as the successor owner of the plan sponsor under the plan terms or seeking a declaration confirming the authority of the plan administrator and trustee appointed by the executor. If court action is needed it seems more prudent to file a complaint, petition, or order to show cause, asking why the custodian or financial institution should not be compelled to distribute the plan benefits to the decedent’s executor as directed by the plan administrator appointed by the plan sponsor, and to pay the costs and attorney fees of the action. The executor would be in a stronger position to avoid authority questions from any custodian or financial institution, if the decedent’s will authorized the decedent’s executor to appoint the plan administrator and trustee for any plans sponsored by the decedent’s or any wholly-owned entity of the decedent. In such case, the court decree accepting the probate of the will would clearly give the executor. This also addresses the possibility that none of the successor administrators or successor trustees appointed by the decedent are available at the time at issue. Best wishes, Albert

Dear Centerstage, Congratulations on your success. Thanks for the clarification of the underlying facts. As with Trisports, the plan beneficiary is the estate. In the estate's litigation against the Plan was the defendant, who were the papers served upon. Did the complaint assert that the plan was an ERISA plan? Best wishes, Albert

Dear Centerstage, Is this a similar fact pattern? How did the financial institution react to this default judgment? Albert

Dear Trisports, It is not uncommon for a sole proprietor who maintains a tax-qualified defined contribution plans, such as 401(k) plans to act as the plan administrator and trustee and fail to make provision for successors if the proprietor is unable to perform the tasks associated with those positions. The plan administrator is generally responsible for plan beneficiary determinations, notifying plan beneficiaries of such determinations and authorizing plan distributions to beneficiaries who request benefit distributions. Plan trustees other than those who act essentially as custodians are generally responsible for the investment of plan assets, although they may delegate such authority in part. It is also not unusual for financial institutions and advisors with control of the plan assets to be reluctant to relinquish control of the plan assets in those situations. It is prudent to verify the agreements those parties have with the plan. The agreements usually require them to follow the instructions of the duly appointed plan administrator and plan trustee. The institutions and advisors often lack good procedures for accepting successor trustees and administrators, but tend to accept such instructions from the sole proprietors with little question, particularly if the proprietor is willing and able to confirm the instructions. Tax-qualified plan documents usually have provisions for choosing successor plan administrators. The plan sponsor is usually given the authority to make such choices. The estate generally steps into the shoes of the sole proprietor sponsoring the plan on the death of the proprietor. Thus, the estate’s personal representative may nominate a successor plan administrator and plan trustee, and if the nominees accept the offices, they will be duly authorized to exercise the powers of those offices. In practice, it often takes considerable time after the proprietor’s death before a personal representative of the estate is appointed and recognizes the need to appoint these plan fiduciaries. One would expect an opinion of plan counsel that the successor plan administrator and trustee have been duly appointed to be accepted by the financial institution or advisor, which will then defer to those fiduciary’s instructions. Unfortunately, this does not always occur, in which case the plan will have to seek a court order, generally from a state court, directing the financial institution and advisor to show cause why they should not be compelled to follow the instructions of the duly appointed plan administrator and duly appointed trustee and to pay the plan’s attorney fees for having to pursue this matter.

Many thoughtful advisors , like Luke and Rather be Golfing, find the statute ambiguous. This suggests two other solutions to the conundrum. Why not ask the IRS to address the examples I presented or any other examples that other observers find troubling? We could then determine if the IRS stands by its safe harbor approach in such cases. Why not ask Congress to clarify the statute?

I do not agree that Bird was wrong. IRS Notice 2020-50 presents what it characterizes as a safe harbor approach and an alternative approach for determining the level payment amortization schedule if a plan loan borrower takes advantage of the delay in plan loan dates between March 27, 2020 and December 31, 2020. I agree with Luke that the safe harbor approach is easy peasy to use, as is the alternative that Bird focused on. However, neither approach is consistent with the CARES Act, as can be seen by changing the safe harbor example slightly. The Notice’s safe harbor example seems to assume that plan loan payments that were otherwise due on the final day of each month between July 1, 2020 and December 31, 2020 were all suspended. This would imply six monthly payments were suspended. a) Assume the loan would otherwise have been paid in full on December 31, 2020. There would seem to be little question about the new level payment amortization schedule. Six monthly payments would be due on the final day of each month between July 1, 2021 and December 31, 2021. The required payments would be increased by the interest that accrued during the one-year delay. However, the safe harbor approach generates a different level payment amortization schedule. Twelve smaller monthly payments would be due on the final day of each month between January 1, 2021 and December 31, 2021. That violates the requirement of CARES Act, §2202(b)(2)(A) that those due dates be each extended by 1 year. In contrast, the alternative approach presented by the IRS yields the correct level amortization schedule. b) Assume the loan would otherwise have been paid in full on January 31, 2021. It is far from clear how to determine the new level payment amortization schedule. However, the safe harbor approach would generate the following level payment amortization schedule. Thirteen smaller monthly payments would be due on the final day of each month between January 1, 2021 and January 31, 2022. That again violates the one-year extension requirement of CARES Act, §2202(b)(2)(A). The alternative approach presented by the IRS would generate the following level payment amortization schedule. The original required January 31, 2021 payment requirement would be unchanged, and the same six monthly payments that were due on the final day of each month between July 1, 2021 and December 31, 2021 under the earlier hypothetical would still be due. However, I suspect the reason Bird believes this is crazy is because it violates the requirement of CARES Act, §2202(b)(2)(A) that “any subsequent payments with respect to any such loan be adjusted” to reflect payment delays and interest accruals. Thus, if the law is not amended plan advisors are left with a conundrum. Do we advise our clients to follow guidance of the IRS, which is the agency responsible for enforcing the loan repayment provisions even though such guidance is not consistent with statute? If we wish to advise following the guidance, do we recommend using the safe harbor, the alternative approach, or a reasonable approach that is consistent with the statute?

Let me add two nuances. An individual qualifies for a coronavirus-related distribution as defined under Section 2202 of the CARES Act under three circumstances. Only one requires that the individual have suffered adverse financial consequences. An individual, however, who has been diagnosed with the virus SARSCoV—2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention, qualifies for such a distribution even if the individual did not suffer any adverse financial consequences. An individual, whose spouse or dependent has been so diagnosed similarly qualifies for such a distribution even if the individual did not suffer any adverse financial consequences. Lois is correct. The IRS takes the position in Answer 11 that she cites that if a plan sponsor knows that an individual does not qualify for a coronavirus-related distribution the sponsor may not rely on such certification.

Correct, I did my calculations like the bankers who make arm’s length loans. Correct, I used a standard amortization schedule. I assumed payments were made as of the end of each period, and that payments were made on January 31, February 29, March 31, and April 30. I computed the principal balance as of April 30 to be $9,222.37 and then accrued interest for eight months until the next payment was made nine months later on January 31, 2021 rather than on May 31, 2020. I did incorrectly describe $9,222.37 as the balance as of May 31, but the concept is more important than the precise number. One could do similar calculations with payments on the first of the month, or whenever payroll payments are made. The difficulty with the two alternatives that Mr. Richter and some of you have presented to the IRS approach set forth in [IRS Notice 2005-92, 2005-2 C.B. 1165, 1171-72 Example is that they contradict either the limit of suspensions to payments otherwise due in 2020 or the level amortization requirement of Code Section 72(p)(2)(C), both of which are set forth in the CARES Act.. I agree with Mr. Richter that “Participants need to understand the impact of the delay of repayments (a participant is not required to suspend repayments and could continue to make repayments on the loan).” It is the administrator’s fiduciary responsibility to give the participants and beneficiaries a notice describing that impact, which requires an explanation of how the borrower’s payments would change if the borrower decided to defer future payments. It would be an invitation to litigation to fail give such an explanation.

I have no comment on what the record keepers are doing. I would take a slightly different approach to determining whether an eligible retirement plan administrator has an obligation to determine whether a non-periodic distribution is a coronavirus-related distribution not subject to the Code Section 3405 withholding tax requirements. I would note that if there is no such obligation, the participant could compel the administrator to transfer the funds in a tax-free fashion to an eligible retirement plan other than an IRA, whose plan administrator is willing to distribute the funds to the participant without any tax withholding. It is difficult to understand why a cash-flow relief provision would require the participant to engage in so much additional work to achieve the same result, i.e., being able to borrow up to $100,000 for up to three years in a tax-free fashion from an eligible retirement plan, as discussed below, particularly when many participants do not participate in a second plan to which they could transfer the planned distribution. The general question is what obligation, if any, does the plan administrator have to determine whether a distribution will be a coronavirus-related distribution. As has been observed correctly, the IRS found not only that there was no obligation, but the plan may refuse to consider a certification by a qualified individual when it decided that a plan could decide whether to treat distributions as what Katrina Emergency Tax Relief Act of 2005 (“KETRA”) called Katrina distributions, and, if it do so, it may develop any reasonable procedures for determining whether a distribution is a Katrina distribution. [IRS Notice 2005-92, 2005-2 C.B. 1165, 1167 (describing this approach in Section 2.C).] It seems more consistent with the KETRA statutory mandate, “qualified Hurricane Katrina distributions shall not be treated as eligible rollover distributions,” and the similar CARES Act mandate that the plan administrator is obligated to have and publicize a good faith and reasonable procedure for determining for tax withholding purposes whether an individual is a qualified individual. One can argue this was not the case for purposes of the KETRA Code provisions, because of a fundamental difference between the KETRA and CARES Act definitions of qualified individuals. A KETRA plan administrator would almost always have the burden of relying upon a participant’s certification that the employee’s principal place of abode was in the Katrina disaster area and the employee suffered an economic loss from Katrina. [Katrina § 101(d)(1).] In contrast, a CARES Act plan administrator often has no such burden. The administrator needs no employee certification because the plan administrator is usually the employer who caused the requisite adverse financial consequences to the employee by furloughing or reducing the hours of the employee. The plan administrator should have no difficulty informing the record keeper about such events. Thus, the CARES Act appears to require a plan administrator/plan sponsor to treat a participant or beneficiary as a qualified individual if it has such direct knowledge, and, if not, to make a good faith effort to explain the significance of such a certificate and request and review any such submitted certificate before making any plan distribution. It would appear that, regardless of the Code requirements, an ERISA plan administrator would have a fiduciary obligation to proceed in this manner under either KETRA or the CARES Act. Thus, guidance is needed from the DOL and the IRS about such notice and determination obligations and the similar ones arising if the plan terms are changed to permit a broader set of distributions.

I would take a somewhat different approach than the above thoughtful approaches. I would also raise the question whether an ERISA plan administrator would be fulfilling its fiduciary responsibilities by offering plan participants and beneficiaries the opportunity to suspend the payment of a plan loan if the administrator could not and did not at the same time disclose the consequence of such suspension on the individual’s future plan payment obligations. The CARES Act declares that “subsequent repayments with respect to any such loan shall be appropriately adjusted to reflect the delay in the due date under subparagraph (A) and any interest accruing during such delay.” [CARES Act § 2202(b)(2)(B) (emphasis added)] Thus, the suspended payments are not simply increased to reflect their delay in payment without changing the amount or the frequency of the originally scheduled post-2020 payments. The Act limits the suspension to the 2020 payments, so the plan may not simply maintain the original payment frequency but postpone all the originally scheduled post-2020 payments for 12 months, but add a one-year interest rate to each of those payments, which would make each post-suspension payment identical. Instead, the CARES Act appears to provide that the payment frequency be maintained, but the number of post-suspension payments will be the sum of (A) the number of suspended payments and (B) the number of payments not suspended. [This is consistent with disregarding the payment suspension for the purpose of determining the 5-year period and the term of a loan under subparagraph (B) or (C) of Code § 72(p)(2). CARES Act § 2202(b)(2)(C)]. In particular, if three quarterly payments were delayed, three quarterly due dates would be added to the original post-suspension payment quarterly due dates. [Thus, if three quarterly payments due on June 30, 2020, September 30, 2020 and December 31, 2020 were delayed, but four later payments were not, seven quarterly payments would be due beginning March 31, 2021, and concluding on September 30, 2022 rather than concluding on the original due date of December 31, 2021]. However, those payments must be increased to take into account how the interest accruals resulting from the suspended payments increased the loan balance. [CARES Act § 2202(b)(2)(B) providing for an adjustment for interest accruing during the delay in payment]. Thus, the post-suspension payments will increase, which raises the question how to best comply with the level amortization payment requirement of Code Section 72(p)(2)(C) for such post-suspension period. The most reasonable answer is to use identical post-suspension payments, rather than varying post-suspension payment amounts, such as one amount for the first 2021 payments that were not delayed, a second amount for the delayed 2020 payments, and a third amount for all other post-suspension payment. This level payment can be generated by computing the December 31, 2020 loan balance to take into account the suspended payments, and then recomputing the level amortization payments to amortize that balance. [For example if the original loan was made on January 1, 2020 for $10,000 with an annual 6% interest rate with 60 monthly payments of $193.33, and the final eight 2020 payments beginning on May 31, 2020 were suspended the balance would increase from $9,422.37 on such date to $9,799.27 on December 31, 2020 as a result of the payment suspension. Therefore, monthly payments would increase to $201.06 beginning on January 31, 2021, and ending not on the original due date of December 31, 2025, but eight months later, on August 30, 2026] This is the safe harbor approach proposed by the IRS for virtually the same KETRA language. [IRS Notice 2005-92, 2005-2 C.B. 1165, 1171-72 Example.]

It is difficult to understand what the Treasury had in mind when it used the phrase for individual assistance with respect to the disaster when it added to the Treas. Reg. 1.401(k) -1(d)(3)(ii) list of 401(k) plan distributions “deemed to be made on account of an immediate and heavy financial need of the employee if the distribution is for” a new item(7) “Expenses and losses (including loss of income) incurred by the employee on account of a disaster declared by the Federal Emergency Management Agency (FEMA) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 100-707, provided that the employee's principal residence or principal place of employment at the time of the disaster was located in an area designated by FEMA for individual assistance with respect to the disaster.” The provision was added in 2019. The IRS discussion of the comments at 84 Fed. Reg. 49651 (Sept. 23, 2019), when it promulgated the final regulations including this provision does not mention the phrase “for individual assistance with respect to the disaster.” The proposed regulation which was released at 83 Fed Reg. 56763 (Nov. 14, 2018) uses the same phrase without any explanation. That document in turn references IRS Announcement 2017-152017-47 I.R.B. 534 (Nov. 20, 2017) which uses that phrase with respect to the Puerto Rico and Virgin Islands disaster declarations following Hurricanes Maria and Irma again without any explanation. However, the significance may be quite academic even if the CARES Act were not applicable because unlike all the other safe harbors this item does not set forth a narrow financial need, such as payments for burial or to repair a principal residence. The paragraph does not require that there be any relation between the expenses and losses incurred by the employee and the individual assistance provided under the declaration. The expenses and losses merely have to be on account of a disaster that meets the criteria of the rest of the sentence. This would be the case whether the individual assistance from the declaration was limited to mental counseling or “for debris removal and emergency protective measures,” as was the case with the cited Virgin Islands declaration (FEMA 4330 Sept 20, 2017), https://www.fema.gov/disaster/notices/initial-notice-27 .

Dear Kac1214, I share Bird’s conclusions. Individuals who make after-tax contributions to plans have basis in employer-benefit plan benefits. Such basis would continue after rollover of by the individual of a benefit distribution to eligible retirement plan, including an IRA. Most recipient plans make no attempt to keep track of such basis, although they often segregate benefits associated with a participant’s rollover. Thus, the presence of basis does not usually affect the decision of a plan to accept a rollover. Individuals are responsible for keeping track of the basis of such rollovers. One could raise the same issue about creating basis with any eligible rollover distribution (as defined in section IRC Section 402(c)(4)) if the individual included some of the distribution in taxable income of the year of the receipt. That inclusion would not be consistent with the exclusion of income rules of IRC Section 402(c)(1) and thus would not be permitted. Similarly, I would conclude an individual who wishes pursuant to the CARES Section 2202(3) to recontribute a coronavirus-related distribution from an eligible retirement plan (including an individual retirement arrangement) within three years to an eligible retirement plan would be compelled to amend any returns to the extent the individual included any portion of such distribution in the individual's gross income. Best wishes,

Let me try again. The question at issue is not the child’s ERISA plan rights, but who can exercise those rights. If the child/employee is an 18-month-year old model, the child would have a right to the agreed compensation, but could not sign any papers to bring a legal action to recover any unpaid compensation. The guardian of the child could, however, execute such papers and bring such an action, recover the funds and deposit the funds in an account for the benefit of the child. Similarly, the 18-month old could not understand or execute any compensation deferral elections, any investment directions, or make any distribution decisions with respect to a 401(k) plan for which the child is an eligible participant. However, again the child’s guardian could act on the child’s behalf to enforce the child’s ERISA plan rights. Moreover, if the plan acted contrary to common sense and treated the 18-month child/employee as willing and able to elect whether to make a deferral, choose plan investments, or plan distributions, the plan would almost certainly be violating the plan terms and the tax-qualification rules.

Let me add my support to M, who is describing the common situation in which a parent pays a minor child to be an employee of the parent’s business. The unusual fact is that the business has a 401(k)-plan permitting deferral and contribution to the plan of part of the child’s compensation. The question is who can make such deferral decision, including what portion of compensation to defer. No State law permits minor children to decide how to dispose of their property. All states have a procedure by which the state courts or a guardian appointed by the court may exercise such power. ERISA has no provision that gives minors or any other individual lacking the capacity the ability to decide how to dispose of such individual’s property. Thus, the plan could not rely on any election executed by the minor or any other individual without capacity Thus, an ERISA plan must defer to the decision of the child’s guardian or a local court about the extent of the child’s deferral, the investment of the deferrals, or the form of the distributions of the child’s account balance on the termination of employment. Parents need not be their minor child’s guardian, but in practice if there is no marital dispute or parental abuse issue, a child’s parent is often accepted as the child’s guardian without any court appointment. If an ERISA plan withholds compensation in a manner that is not consistent with the election of the child’s guardian, the consequence would be the same as if it withheld compensation of any employee with capacity without the employee’s consent. In either case, the employee would be entitled to a refund of the wrongful contribution and accrued earnings. If the 401(k) plan had a qualified automatic contribution arrangement the issue would remain because such arrangements must give the employee the right to stop such contributions. This right would be a nullity unless the person with the right to act on behalf of the employee without capacity is timely given such a right. Whether or not the guardian of the individual without capacity seeks a refund in such a case has nothing to do with the tax qualification of the 401(k) plan. If the plan fails to follows its terms that deferrals be made only in accord with employee elections, whether initial or to stop an automatic contribution, the plan is not tax-qualified. There would no such compliance if an employee lacks capacity to make such an election, and the person, if any, with such authority is not given the right to make such election. On the other hand, a timely refund could eliminate the tax-qualification issue.

Rather Be Golfing and J made excellent arguments with respect to fiduciary not having liability in the cases we have been discussing. However, ERISA §§ 206(d)(I), and 205(c)(6) refer to the plan being relieved of liability when the fiduciary behaved in accordance with the ERISA fiduciary responsibility requirements. This means that if the plan is thereby relieved of the liability the fiduciary is relieved of the liability in those cases. The difficulty in practice in other cases, such as the one under consideration is a practical one. If the plan is not relieved of the benefit payment obligation if the fiduciary fulfilled its ERISA responsibilities, the plan has no motivation to show that fiduciary fulfilled those responsibilities. Instead, it has every motivation to claim that the fiduciary failed to do so, particularly if the fiduciary who made the payment decision is no longer with the plan. Thus, I agree with Rather Be Golfing, this is another example of why fiduciaries find it useful to have fiduciary liability insurance.

When wills are probated, it is quite common for the beneficiaries to be a subset of the decedent’s issue. Sometimes, the subset is the surviving children, although anti-lapse rules, such as NY EPTL § 3-3.3, would require such a disposition to explicitly exclude the issue of a deceased child. Probate courts do not require examinations of birth certificates, adoption records, or instruments acknowledging paternity as a matter of course. Moreover, in many states paternity may be established without any of those documents, if the father has openly and notoriously acknowledged the child as his own, such as NY EPTL § 4-1.2(a)(2)(C). This is presumably why the plan administrator knows that S and D are the participant’s two children. In fact, most courts accept the representations by the probate petitioner of who were the decedent’s children unless someone challenges that representation. If, as in this case, everyone knows that S and D are the decedent’s children, not only would the probate court not, sua sponte, challenge their rights to inherit, it would likely not permit the estate’s personal representative to charge the estate any expenses for confirming the parentage of one or both children. The question may be raised what happens if the estate’s personal representative learns after making payments that one of the claimed children is not a child of the decedent. If the personal representative behaved prudently in making its determination, it would not have any liability to the actual child for making a distribution to the individual who was not a child. In contrast, if the plan administrator made a similar mistake, the plan/administrator would be liable to the actual child for the benefit to which the child is entitled to under the plan terms. ERISA § 502(a)(1)(B). The prudent behavior defense is only available to a plan/plan administrator who so acts with respect an order that appears to be a QDRO, ERISA 206(d)(I), or with respect to what appears to be a required spousal designation, ERISA § 205(c)(6). On the other hand, if an administrator imprudently incurs plan expenses in determining whether an individual is the participant’s surviving child or issue, such as in this case where there is no doubt that the individual is a child of the participant, those expenses may be surcharged against the administrator. A similar argument could be made to prevent the administrator from imprudently imposing needless certification charges on plan beneficiaries. In fact, the more serious risk for plan administrator is not that an individual claiming to be a child is not the participant’s child, but that the plan administrator is not aware of an unacknowledged child, which is often very hard to discover. Plan sponsors who believe that this is an undue risk, thus provide that the default designation is the participant’s surviving spouse, if any, and the contingent beneficiary is the participant’s estate. In this way, the plan would be relieved of the obligation to determine the identities and locations of the participant’s other surviving relatives. Few sponsors are concerned about such risks, and thus few plans with such default provisions

If the plan provides that the default beneficiaries are the participant’s children per capita, then the surviving children would be entitled to equal shares of the participant’s survivor benefits. Plans, however, rarely provide that the default designee would be the participant’s children per capita, although some do use the more intelligible phrase, the participant’s surviving children. In such case, the plan administrator has the responsibility and authority to determine the identities of the participant’s surviving children. Administrators rarely ask for birth certificates or adoption papers to make such determinations, although they may do so if there is uncertainty about whether an individual is such a child. If the plan is an ERISA plan, the plan documents determine whether there is a de novo review or a deferential review of a beneficiary determination. The premise of this question is that the administrator knows that both S and D are the only surviving children. In particular, the first paragraph states that “Participant had two children, son "S" and daughter "D". Thus, under either standard of review, there would seem to be no basis for the administrator to find that either individual was not entitled to half of the survivor benefits. If the plan is not an ERISA plan, then state law would govern. I am not licensed to practice in all fifty states, but I would be surprised if any state law would yield a different result under these circumstances.

Let me clarify three points. · Benefit entitlements are determined under ERISA not under the Internal Revenue Code. In particular, ERISA § 206(d)(3) defines a Qualified Domestic Relations Order (“QDRO”) and the benefit entitlements they determine. That definition is repeated in IRC § 414(p)(1). A QDRO must satisfy both substantive and notice requirements under that definition. · ERISA requires plans subject to ERISA § 206(d)(3) to maintain reasonable procedures with respect to notices and determinations pertaining to orders that may be QDROs. Those procedures must include provisions for the segregation of benefit payments that are at issue while the determination of whether a DRO is a QDRO. · An order is a QDRO whether the plan determines that the order is a QDRO. In fact, courts may overrule plan QDRO determinations.