Plan did not learn of death until 5 years later...What effect on distribution to a beneficiary?

[mal]

A db plan allows for an unmarried participant to designate a beneficiary to receive a "return of contributions" death benefit in the event he passes away prior to retirement. Participant was inactive but vested and died in 1996. Per the terms of the plan, his son would have received the benefit. HOWEVER, the Plan did not learn of the death until last month...8 years after the fact.

The terms of the Plan cite the distribution requirements of 401(a)(9). Pursuant to this section of the Code, a death distribution to a non-spouse must begin no later than 1 year after the death.

What does this mean for the beneficiary? Does he forfeit the benefit? Is the Fund allowed to make the payment?

Your assistance is appreciated.

[mbozek]

Benefits attributable to participant's contributions cannot be forefeited upon death. There is a weird issue because while Q plans are not subject to constructive receipt, the benefits must be distributed no later than 5 yrs after the death of the ee. If no one claims the benefits the plan doesnt know that the ee is dead. Best case is to distribute the benefits to the bene in a lump sum and report it as an 04 distribution on the grounds that the plan is obligated to pay the benefits to the designated bene and the payment is taxable in the year received. If this is a return of contribution then most of the payment will not be taxable.

[david rigby]

...the son would have received the benefit...

This might be immaterial, but the Plan may need to determine if one or more others could have also been a beneficiary if the Plan had been informed of the death in a timely manner (for example, a sibling who has since died). I don't know, just being cautious.

[GBurns]

The inclusion of "Does he forfeit the benefit?" caught my interest and I wondered what the thought process behind this might be.

If you are going to entertain even a cursory thought of a forfeiture, I would suggest that you think of the possibility of an operational failure of the plan and the possible consequences. To wit, the Plan did not distribute the benefit as per its PD nor did it do so within the statutory time frame which mbozek gives as being 5 years. What happens to a plan that does not operate as per its own PD or as required by law? Disallowance??

I suggest you do as suggested by mbozek and do not run the risk of unintended consequences. The forfeiture is not large enough to have warranted the thought.

[mal]

Easy there big guy...it was only a question.

We do not want to see a forfeiture, but are unsure how the rules work. Under 401(a)(9) and the regs, the timelines for payment are clear. However, the regs make no mention of the case where the plan does not know about the death until years after the deadlines. While the late payment may be a technical defect, what can the plan do? We want to be fair and cover our backsides.

[GBurns]

I am sorry that I might seem touchy about the subject, but I am.

I have seen too many plan participants get "ripped off" and many times the employees who did the paperwork just never realized the consequences to the employee, ex-employee or beneficiary much less the potential for litigation etc. They very often were just following orders from superiors who had not a clue that any laws might be involved.

I still remember my "awakening" to pension rip off which occured back in 1967. Since then I have seen numerous instances and am somewhat thankful that the courts have eventually come to realize that such complaints are not frivolous. Maybe one day the DOL will become really effective in this area too.

In this case, I guess you could not have done that which you did not know needed doing.

[AndyH]

mal, Mr. Burns is a bit of an odd sort, so you are right to ward him off.

But in the situation you have described, you don't know what you don't know, so I would simply correct the matter as best you can (distribute it) and be done with it.