Payments Owed by DB Plan to Deceased Participant

[Guest lvegas]

Facts:

DB Plan offers option of single-life or J&S benefit

Participant retires, then participant and spouse elect out of J&S

At some point in future, Participant dies in pay status

At time of participant's death, Plan owes participant retro check for accrued but unpaid benefits

Plan does not have beneficiary (designated or otherwise) rules (i.e., there is no express provision indicating what to do in the event of an unpaid accrued benefit)

As matter of course, Plan typically pays retro check to surviving spouse.

Question: Does payment to surv. sp. violate anti-assignment and alienation rule of IRC 401(a)(13)? This would seem to be the case based on fact that only participant (really, his estate) has a right to this payment since spouse opted out. If it is a violation, could plan get around it by adopting a rule or policy to allow such payments (assuming the Plan so allows)?

Thanks in advance...

[mbozek]

Why not make the check payable to the estate of the participant and send it to the spouse with a letter stating that it should be turned over to the administrator/executor of the estate.

[Belgarath]

Did the spouse really opt out? Just because there was a waiver of J&S doesn't necessarily mean that the spouse gives up all beneficiary rights to any payments that aren't J&S.

[Guest lvegas]

mbozek: I like the idea of making the check out to the estate. However, the Plan would still need the estate's TIN to properly report the payment on a 1099-R, which could be problematic in situations where the estate for whatever reason is not being probated.

belgarath: I'm not entirely sure I understand your question. The plan text makes clear that if the participant and spouse elect against the J&S, the spouse is not entitled to receive anything if the participant dies in pay status. Are there any rules under the Code or ERISA that say otherwise? I believe IRC 401(a)(11)(B) generally requires certain DC plans that do not have annuity options to pay the account balance to the surviving spouse upon the participant's death, but I'm not aware of such a rule in the DB context.

[Belgarath]

That's ok, I'm not entirely sure I understand my response either! I really was thinking of DC plans. So ignore my initial response...

[mbozek]

So make the payment to the deceased if you think that getting the TIN for the estate is a problem. The spouse or personal rep will deposit the check to the estate's or spouse's account.

[Guest lvegas]

My initial reaction was going to be that I like your idea (I'm all in favor of ease of administration), but that my understanding of the 1099-R instructions (p. R-5 specifically as well as code 4) is that the TIN of the estate (or beneficiary, which is not applicable here) should be used when making a distribution on account of a participant's death, not the TIN of the deceased participant. This in my mind would preclude paying the distribution in the name of the deceased participant.

However, I actually took a look at the instructions (imagine that) and I think I agree with your solution, at least from a tax reporting perspective. Here's why - the instruction in question specifically states:

BENEFICIARIES. If you make a distribution to a beneficiary or estate, prepare Form 1099-R using the name and TIN of the beneficiary or estate, not those of the decedent.

and,

Code 4 for is to be used "regardless of the age of the employer/taxpayer to indicate payment to a decedent's beneficiary, including an estate or trust."

It is pretty clear that the instruction (contrary to my initial understanding) is not compelling the payor to make payment to either a beneficiary or estate in the event of death; rather, it is indicating that in the event a payor actually does make payment to a beneficiary or estate, then the TIN of that b or e must be used. So, the logic goes, the plan would not prohibited by the instruction from paying in the name of the participant, so long as the participant's TIN is used.

I like it, provided there isn't some other rule out there prohibiting a Plan from making payments to a participant when the plan knows that the participant is dead.

[Guest lvegas]

As a follow-up, and to separate my question from the bulk of the prior post, is there a prohibition against issuing a check in the name of a participant instead of the participant's estate when the plan knows that the participant is dead?