Death Benefit to Spouse

[DTH]

The 401(k) plan provides that death benefitd commence in the calendar year following the calendar year of the participant's death and is paid in a lump sum unless the beneficiary elects another form of benefit under the plan. The plan permits annuities and MRD installments.

The participant died in 2002 before his required beginning date. The particiapnt would have turned 70-1/2 in 2015. The spouse designated beneficiary made no election in 2003 and still has an account balance in the plan. Clearly the plan has an operational defect since no benefit payment begain by 12/31/2006.

To the extent she did not make an election as to how she wanted the death benefit to be paid, I assume that the plan's default form of death benefit prevails - the lump sum. Is the entire lump sum eligible to be directly rolled over to an IRA or other eligible retirement plan? Or does the plan need to pay her beneficairy MRD for 2003 - 2007 first?

[masteff]

It's not a true MRD until 2015, so none of the money would be precluded from rollover due specifically to that.

Perhaps someone more familiar w/ this type of error and correction could address whether the correction would cause any amount to not be rollover eligible.

[Guest mjb]

If it is paid in a lump sum she has 60 days to roll it over. IRC 402©(9). reg. 1.408-8 q/A-7

[FundeK]

For spousal beneficiaries ONLY. A spousal beneficiary must commence distributions by the later of

1) December 31 of the calendar year that follows the calendar year in which the participant died, or

2) December 31 of the calendar year in which the participant would have attained age 70 1/2

So, a spousal beneficiary, depending on the terms of the plan document, could leave the money in the plan with an election to start installments in the year in which the participant would have attained age 70 ½.

Based on the information you provided, you do not need to force a lump sum, but would need to force and RMD in 2015.

[masteff]

For spousal beneficiaries ONLY. A spousal beneficiary must commence distributions by the later of

1) December 31 of the calendar year that follows the calendar year in which the participant died, or

2) December 31 of the calendar year in which the participant would have attained age 70 1/2

So, a spousal beneficiary, depending on the terms of the plan document, could leave the money in the plan with an election to start installments in the year in which the participant would have attained age 70 ½.

Based on the information you provided, you do not need to force a lump sum, but would need to force and RMD in 2015.

But the plan can have more stringent requirement than that, which the original poster states is the case here (first paragraph of post).

[jpod]

If, as the original poster stated, this is an operational error, more likely than not this is a no harm no foul that can be self-corrected in accordance with the requirements of EPCRS.

[FundeK]

In my experience, many don't know about the exception for spouse's and assume it is the same for both because the document just references the regs and doesn't always call out the difference. Can the original poster clarify exactly what the document states?

[masteff]

The 401(k) plan provides that death benefitd commence in the calendar year following the calendar year of the participant's death and is paid in a lump sum unless the beneficiary elects another form of benefit under the plan. The plan permits annuities and MRD installments.

Just re-reading DTH's original post. Since the plan permits MRD installments which we all agree don't commence until 2015, and since the spouse hasn't received any distributions, aren't we forced to concluded the spouse has elected MRD installments beginning in 2015? I.e., the spouse is deferring distribution until the required beginning date? (Note: some plans either include language or have a standard operating policy that if one option is to defer commencement, then that's the default until the participant elects otherwise.)