beneficiaries/distributions

[Felicia]

If a participant designates non-spouse beneficiaries for his 403(B), upon the participant's death prior to his Annuity Starting Date, may the assets remain in the plan? If so, can separate accounts be set up for each beneficiary and each beneficiary's life expectancy be used to determine the amounts to be distributed?

[Guest Yanikoski]

No one seems to want to answer this one, so I'll take a whack at it.

What you describe is acceptable under the current IRS regulations on required minimum distributions. Plans, plan administrators, and product vendors should be set up to handle this situation this way. However, the IRS provision for separate sub-accounts for beneficiaries of different ages is new, and plans and product vendors are not REQUIRED to offer this option, last I heard.

[Guest Just Visiting]

Yanikoski

Actually, it is not required that the plans be set up in this manner. The beneficiary options are not required to be followed by the plan.

The beneficiaries must check with the plan sponsor to determine their options.

[mbozek]

Beneficary designations and distribution options are a matter of contract between the participant and the insurer or custodian. The contract will spell out the options. Also I dont think an insurer will agree to separate accounts which creates the possibliity of adverse selection which can increase the the amount of the payments to beneficaries.

[Ellie Lowder]

Actually, I am aware that some insurers are attempting to set up systems to provide for separate sub accounts in 403(B) plans - this will help them attract tax-free transfer business of inherited accounts from insurers that don't do it, as I understand the reasoning! Also, movement of money while the participant is still alive - e.g., to pre-plan for non-spouse beneficiary stretch opportunities.

[mbozek]

I wonder what the Bests or Moody's rating is of those co that want to attract such business.