Beneficiary's consent for a distribution

[Guest Do]

If a beneficiary's benefit (that is, the participant's death benefit) is more than $5,000, does the beneficiary have to consent to a distribution or can we just pay it out?

The plan document doesn't say. I'm confused about how the 411 417 and 401(a)(9) regs fit together. The 1.411(a)-11 regs say consent is not required after the death of the participant. The 1.417(e)-1 regs say a beneficiary may be paid to a NONspouse beneficiary without the beneficiary's consent. The (a)(9) regs provide for several required beginning dates. If a plan can pay out to a beneficiary at any time without consent, why are the (a)(9) for beneficiary's necessary? That is, isn't the plan going to pay out a beneficiary's benefit before the required beginning date?

[Mike Preston]

To the extent the plan provides for options, the plan must provide those options! Paying out the money without consent hardly constitutes providing options. Let's assume the plan provides the minimum options. That would be a rollover, if the beneficiary was the spouse. If not the spouse, and no options, you can just pay it out.

[Guest Do]

So you're saying for nonspouses, we can just pay out. For spouses, we pay out with consent now or pay out without consent at a later time. When do we pay out without consent? According the plan's RMD provisions or the participant's normal retirement date or some other date?

[Mike Preston]

Have you read your plan? Do you know its options? Nobody can answer your questions without having read the document.

A general response might be along the following lines:

Non-spouse

If no plan options as to form of benefit other than lump sum, then pay the benefit pursuant to the plan - in the form of a lump sum, withholding taxes.

Spouse

If no plan options as to form of benefit other than lump sum, then since spouse has a right to roll benefits, spouse must be given choice to roll benefits.

If your plan has other options for either nonspouse or spouse, then those options must be presented to the nonspouse or spouse.

[Guest Do]

Thanks for your response. Your question of whether I have read the plan document is condescending. Of course I have read the document. There are forms of distribution other than lump sums. Are you saying if the beneficiary has options, we must have obtain consent?

[Larry M]

yes, your plan provides forms of beneift other than lump sum. These "options" are for the beneficiary to choose, they are not for the plan to choose.

[jaemmons]

Unless the other forms of benefit are annuities, I don't think you need spousal consent. Just because optional forms of benefit are offerred, does not necessarily subject the plan to spousal consent (e.g.- other form is an installment) What are the other forms of benefit?

Is the plan automatically subject to the spousal consent requirements IRC 417? (ie. - plan is a db, money purchase, target benefit or nonsafeharbor profit sharing plan?)

If the plan is a profit sharing plan which contains safe harbor language (e.g.- plan doesn't allow for annuity payouts, spouse is automatically the primary beneficiary and the plan does not contain transferred ("tainted") assets from a db, money purchase or target benefit plan) it is not subject to spousal consent.

Generally, only nonsafeharbored plans, and plans subject to minimum funding standards must provide for spousal consent, with respect to benefit payments and loans issuances greater than $5k.

[Mike Preston]

jemmons, I answered the question under the theory that this is a death benefit distribution to a beneficiary. If spousal consent is involved, isn't it a distribution other than a distribution to a beneficiary?

[Guest Do]

My question had to do with a death benefit distribution to a beneficiary. Our plan document provides for optional forms of distributions. Because of that, I'm understanding, that beneficiaries should choose their form of distribution.

What happens if a beneficiary doesn't respond to our letters and won't elect a form of distribution, what if the beneficiary wants to delay distributions for as long as possible? I'm reading here that we need consent because of the optional forms of distribution; yet, 1.411(a)-11 says we don't need consent.

Does anybody know?

(Before anybody asks if I read the plan document again, yes I did. But I still need to know what the law says because the fiduciary duty to follow the terms the plan document is conditioned on whether the plan term is consistent with the law.)

[jaemmons]

Mike,

You are correct. I overlooked the "death benefit" part of the question.

After rereading the original question, the death benefit would fall under the 401(a)(9) regulations, since the consent requirements of IRC 411(a)(11) do not apply after a participant's death. (Reg 1.411(a)-11(5).

The timing of when payments must commence depends upon whether the plan contains provisions as described under Reg 1.401(a)(9)-3 Q&A -4(B) & ©. As such, the plan can dictate application of the 5yr rule or life expectancy rule or it can contain provisions which allow for individual elections. If individual elections are allowed, they are irrevocable and must be made by September 30th of the calendar year following the year of the participant's death. If no election is made by this time, the plan may (as long as it contains such language) specify the method of distribution.

I suppose it gets back to what Mike P. eluded to earlier...What does the plan say? Absent any language, the benefit could be left in the plan until the deceased participant would have attained age 70.5. (1.401(a)(9)-3 Q&A 4(a).

[Mike Preston]

I agree with you jaemmons. It depends on the provisions of the plan. I know that DO thinks I'm being condescending when I ask if the plan document has been read or not. I'm not trying to be. But I know how "RTFD" (read the fantastic document) comes across as an "instruction."

And in this case, all we can do is suggest that same instruction, but paying particular attention to the forms of benefit and the timing of elections for death benefit distributions.

DO, I tend to think that you might be reading the document, but not the part of the document that is particularly relevant to death benefit distributions. For example, you mention optional forms of distribution. What kinds of optional forms of distribution are you reading in the plan document that are particularly applicable to death benefits? If you see things like "100% Joint and Survivor annuity" I can pretty much guarantee that such an option is not available to a beneficiary pursuant to a death.

Maybe if you quote a section of two from the document which identifies the optional forms you are talking about it will become clearer.