Interpleader

[DTH]

There have been many posts on this topic since 2001 but not many answers. Hopefully since time has gone by someone has had more experience.

A particiapnt died with an account balance in a DC plan and the court has been brought in to interplead several claims against the death benefit. We were requested to pay the benefit to the court. Questions:

1. Is the plan required to tax report the payment to the court? I assume no, that until the court decides who is to receive the death benefit that it is still held in trust.

2. Once the court decides who gets the death benefit how does the plan withhold taxes and tax report?

3. If the plan allows a form of benefit other than a lump sum, does the plan need to offer the other forms to the court appointed beneficiary?

4. How do the MRD rules apply. In this case the participant was 40 and the plan allows the designated beneficiary to elect the 5-Year or Life Expectancy Rule.

5. How does this affect Form 5500 reporting?

6. Why allow the dollars out of the plan at all unless the MRD or plan provisions force it out? Why not wait until the court makes its decision?

Thanks!

[Guest gdburns]

Sometimes a lack of answers is caused by the facts being unclear to those who might respond.

I do not know much about the subject but was interested in the answers.

I did not try to do any research because I was not clear on the facts etc. and deferred to those with expertise or experience.

For example, If you are the "Plan" Shouldn't you have been the party to bring interpleader? I thought that interpleader only occured if there were more than 1 party disputing your action thereby causing you to seek Court intervention.

As far as I know, you are required to make the deposit with the court which the court holds "in trust".

Since this is not a distribution there is no tax reporting as yet.

When the dispute is settled the court will direct you as to where the proceeds will be given. They could disburse directly or return to you for distribution. It depends.

The options for distribution should be made clear to the Court in the filings. If the Court is not notified, the Plan will be delinquent in its duties etc.

When you know who gets what, then you report.

Why wait until the Court makes its decision? That is the way that our legal system works. That is why there is a lawsuit. Would you prefer to make a distribution to a party who turns out to be the loser?