Participant elects rollover but dies b4 payment; plan's beneficiary de

[EGB]

Participant in 401(k) terminates employment and completes rollover forms to roll money into an IRA. Participant dies two weeks later before rollover to IRA is made. Beneficiary designation under 401(k) plan names A as the beneficiary. Beneficiary designation under IRA names B as the beneficiary. Who gets the money? The clear intent of the participant is for B to get the money, but the rollover had not yet occurred. It seems to me that A gets the money since there was not actually an IRA with money in it at the time of the participant's death (ie, the money was in the plan at the time of the participant's death, such that the 401(k) designation controls). How much weight, if any, is given to the clear intent of the participant?

[KIP KRAUS]

beth:

I'm not an attorney, but until a distribution is made from a qualified plan to an IRA, in my openion, the beneficiary designation under the qualified plan is the ruling document. I would argue that until the money is distributed to the IRA, the care, cutody and control of those moneys come under the provisions of the 401(k) plan document, and if the original beneficiary designation under the 401 (k) plan is legitimate it should be recognized as the only beneficiary designation.

Another thing, if the clear intent was to give the money to B, then the deceased could have changed the beneficiary under the 401(k)plan at any time provided he/she was not legally married, or if married, obtained written permission from the spouse to change the beneficiary.

Sounds like A is your client. Good luck.

[jeanine]

Don't even think about distributing the money to A until you have consulted an attorney with experience in this area. I am unfamiliar with what is required to "complete" a transfer. If the deceased completed all the necessary acts before his demise, then you have more than just the mere intent of the IRA holder to consider.

[Guest GregSelf]

Things to consider:

1. Is A the ex-spouse of the participant? If so, then does the plan include any language which nullifies the existing beneficiary designation upon divorce? If so, no problem.

If not....

2. Were contracts (re: the IRA and the plan distribution) actually signed and submitted? If so, this will provide a strong argument against existing designation forms.

3. Regardless of first two items, there have been numerous court cases which have found that the beneficiary form rules (even preempting state laws). And unless it was changed while the participant was still alive, it's still in effect.

Having said that, I will now tapdance and side with jeanine. Don't touch this one without an attorney.

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[EGB]

Thanks for the responses.

GregSelf - A is not an x-spouse. Yes, all the documentation had been executed by the participant (ie, new IRA established to roll the money to; beneficiaries designated under the IRA; rollover forms completed to move the money from the plan to the IRA). As Kip Kraus points out, the one thing that was not done that could have been done was to change the beneficiary designation under the 401(k) plan.

Any more thoughts on the appropriate thing to do? Would it be appropriate for the plan administrator to seek a declaratory judgment? Of course, if a declaratory judgment is appropriate, next question becomes whether the administrator can properly charge the expenses associated with seeking and obtaining a declaratory judgment to the plan's trust.

[david rigby]

Sorry if this seems too trivial, but make sure there is no QDRO that may have an impact.

[EGB]

David -thanks for your response. Nothing is too trivial for me. However, we do not have a QDRO.

I have seen a number of rulings that involved the question of "who gets the money", but have not found one that fits my situation. For example, I have seen cases (1) where the participant remarries and forgets to change his benef. desig. from the x-spouse to the current spouse; (2) where the divorce decree says one thing and the benef. desig. says another; (3) where a participant's will and his IRA/plan benef. desig. differ, etc.

It seems that the cases tend to say, "you should have changed your beneficiary designation in the 401(k) plan." Our case is tougher because he had named beneficiaries for the IRA to which he had elected a rollover. My feeling is still that the plan desig. probably controls, though I would not be at all surprised if a court looked to the clear intent of the participant.

Any further thoughts on who should be paid and/or on whether a declaratory judgment is appropriate would be greatly appreciated.

[Kirk Maldonado]

I'd file an interpleader action. In other words, you deposit the money with the court, and say you don't know (and don't care) who gets the money. That way you let the court decide and you avoid the plan (and its fiduciaries) getting sued.