Multiple Death Beneficiaries

[jpod]

I am looking for a sanity check. The facts are that Mom died with a one-person qualified plan after her RBD. Four adult children are equal designated beneficiaries. Nothing was done prior to death to suggest that "separate accounts" were established.

1. Can "separate accounts" be created post-death for purposes of allowing each beneficiary to use his/her life expectancy in calculating MRDs starting with the year after the year of death? My recollection is that you can create the separate accounts post mortem, and if you create them prior to the end of the year of death, the MRDs for the beneficiaries for the following year will be based on their respective life expectancies (rather than the oldest beneficiary's life expectancy). I think you can even do it as late as Sept. 30 following the year of death, but then your stuck with the oldest beneficiary's life exepectancy for the first year after the year of death. Do you agree with any of this?

2. Suppose the plan is amended for EGTRRA, etc., then terminated. Can we dispense with establishing "separate accounts" at the plan level and simply do direct rollovers to four IRAs (one for each beneficiary) and each beneficiary can use his/her life expectancy in calculating MRDs from the IRA? In other words, is the division of the qualified plan account into 4 equal shares in connection with the rollovers the equivalent of creating "separate accounts"?

[david rigby]

There is a reason that we learned how to diagram sentences. But I digress.

A few thoughts:

- Does "after RBD" mean that minimum distributions had (or had not) commenced?

- The context appears to be a DC plan. Is that correct?

- Is there any reason that the plan's existing death benefit provisions are insufficient to guide distribution?

- Since distribution upon death will (apparently) exhaust the plan, is there any reason to terminate it? More to the point, why is anyone discussing plan termination?

[jpod]

I'll make the assumption that your goal is to be helpful and not merely critical (notwithstanding the sentence diagramming comment, which went over my head). With that assumption:

RBD means "required beginning date." It's not relevant whether distributions actually started; what's relevant under 401(a)(9) is whether death occurred before or after the RBD.

Yes it is a dc plan.

Existing MRD provisions are in the form of the model amendment published in 2002, so they neither address the question nor present an obstacle.

I don't understand the "why terminate" question, but in any event the issue you raise is not pertinent to the MRD questions.

[Bird]

jpod, I think you are correct (that you can create separate accounts post-mortem - it's actually as late as Dec 31 of the following year - and also that you could just pay to the separate IRAs without establishing separate accounts at the plan level).

I believe that you have an RMD due for this year, and then can pay out the balance as non-spousal rollovers. In that scenario, post-death RMDs never commenced from the plan and so the individual IRA owners will be able to establish their own life expectancy payouts. (I couldn't find anything directly on point, and I don't think there is anything, so this is an interpretation.) If you're running this through an admin system, you might create separate accounts in the system (i.e without doing physical separate accounts) and that should nail it down but if not I wouldn't obsess with setting up separate physical accounts. (Unless of course someone else chimes in and proves me wrong!)

(FWIW I have some doubts about the investment companies getting it right in the scenario where separate accounts were not established and bene A, born 1/1/52, does a rollover and is supposed to continue getting RMDs based on sibling B, born 1/1/50. But I digress.)

Also, I think you are on the right track in amending and terminating the plan. The plan will not cease to exist, IMO, simply for lack of having any participants.

[jpod]

Thank you, Bird, for your thoughtful reply. By the way I agree 10,000.00% with the obervation in your 3rd paragraph.

[Appleby]

Another good reason to officially terminate the plan is …the direct rollover ( rollover to IRA) options for nonspouse beneficiaries is still an optional provision . However, where a defined contribution plan is terminated, the rollover option is available to the beneficiaries, regardless of whether the plan was amended to include that provision.

The RMD for this year that Bird mentioned would be required if the Mom did not satisfy her RMD before she died. In which case, the beneficiaries would be responsible for satisfying that RMD and it would be reported in their names and TINs.

I agree with Bird too on the observation. There is a general consensus that they are unable to determine if such a calculate would be accurate, based on the multiple factors that apply- namely the one mentioned. And since the rules that require them to calculate the RMD for IRAs excludes inherited IRAs, they do not include them in their RMD processes. The beneficiary is fully responsible for ensuring the calculation is accurate.