5-year death benefit distribution deadline coming up, but beneficiary designation form filled in incorrectly

[MJ Hartman]

A soap opera setting. Owner of a company dies in an accident in 1998. Beneficiary designation shows that he had put his children as beneficiaries but form was not completed correctly: spouse (2nd wife/trophy wife) never signed off on the form (the broker's fault, not hers). The story goes that there was a pre-nup. where the wife signed off on the company ownership/benefits and was set up with a life insurance policy of some kind so the children were supposed to get the $.

Children are each paid $15k in the year after death from his plan account balance(PST/401k Plan). No further payments are made to them.

5 year dist. rule is coming up fast. The trustees are planning to pay the balance of the distr. benefit to the spouse/widow.

It would seem as though this account has begun to be distributed. Shouldn't the $ due the spouse be paid out or started to be paid out in some type of annuity format? The current tpa is telling the trustees that they don't have to do anything with the death benefit and it can stay in the plan. Should the trustees force the $ out (approx. $300k)? call their attorney,? call Lifetime Movie Channel?

[david rigby]

Call the plan's attorney !!!!!!!!!!!!!!!!!!!!

[mbozek]

Since pre nups are not valid waivers of spousal rights under an ERISA plan, the widow is entitled to the entire death benefit, e.g., 100% of the account balance. The trustees are at risk if any of the death benefits were paid to the children and therefore should consult counsel. The death benefits payable to the spouse are not require be distributed within 5 years after death. The spouse could rollover the balance to an IRA at any time.

There may also be collateral liability for the attorney who drafted the pre nup if the owner was advised that it would eliminate spousal rights to an ERISA covered plan.

One big Question: does the spouse know that she is the beneficiary of all the death benefits or are the kids and H's estate assuming that she is not entitled to amount paid to the kids because she signed a pre nup in return for the Life insurance. I think the Plan admin has a fiduciary duty to tell the spouse of her rights to the payment to the kids.