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Alternate Payee dies before distribution and w/o naming a beneficiary


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We have a situation where we have a QDRO, the alternate payee has died and did not name a beneficiary. In paying the benefits due the AP, do we just pay to the AP's estate (which is what we do if a participant does not name a beneficiary and has no spouse, etc.)?

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I beg to differ with Janet M. The QDRO itself will determine what happens in the event the alternate payee dies prior to receiving full payment. Plan terms are irrelevant (unless the QDRO is silent).

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What does the plan say if a beneficiary dies? Alternate payees are more like beneficiaries than participants in many respects, including ERISA provisions that treat APs as beneficiaries. What do the written QDRO procedures say about the interest of the alternate payee and beneficiaries of alternate payees? What does the order say? Assuming that this is a defined contribution plan that allows alternate payees to designate beneficiaries, and assuming no answer from the other sources, the money would probably go to the estate of the alternate payee. You really should have a clear answer from the other sources. If not, you need to work on the documents.

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I have requested a copy of the QDRO to review the language again. The plan states that if a participant dies without a beneficiary (and isn't married), the proceeds go to the participant's estate. I'll see what the QDRO procedures provide to see if this is addressed. I'll also see what it says about a beneficiary.... thanks for the suggestions... I'll post what I find.

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Larry, so after you segregate the assets into alt payees account you are saying you don't treat them as is they are participant? Rarely do I have DC qdro that says anything about beneficiary.

JanetM CPA, MBA

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In my area, the custom is the divorce attorneys draft the putative QDROs. The boilerplate circulating among those divorce attorneys specifies in the order that the AP's estate is the death beneficiary. The contrary situation to Janet's situation.

I review for several ERs the orders they receive to determine if they pass muster under IRC 414p and ERISA 206d3. To date it has not cropped up, but supposing that a particular plan document has default death beneficiaries listed by type and allows participants to specify a death beneficiary, what would the plan do with the benefits if the order found to be a QDRO specifies the AP's estate, the AP nonetheless submitted a specific death beneficiary designation other than the estate, and then dies with benefits remaining in the plan?

On the one hand, the AP has followed the plan's provisions, but by doing so has violated the court order by which the AP was awarded the benefits in the first place. The specification in the court order of a death beneficiary may presumably be a condition of the benefits being awarded. Is the attempted designation of someone other than the AP's estate invalid?

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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DC, separate account.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Janet -- As I stated, if the QDRO is silent then you follow plan terms--assuming, of course, the plan's terms include language relating to an alternate payee's beneficiary. I know that an alternate payee is considered a participant (says the DOL ) in some manner and for some purposes, but plans universally define a participant as being or having been an employee, and the beneficiary described in the plan usually is based upon death of a participant. An alternate payee, in that instance, might not be able to rely on the Plan's provisions regarding beneficiary. (Corbel, for example, discusses what impact a QDRO has on the (now former) spouse's status as a participant's beneficiary--looking to the QDRO in some instances--but does not say what happens at the death of an alternate payee.)

Besides, the QDRO isn't always silent about beneficiaries for an alternate payee. I've seen a DC QDRO--where the alternate payee could not receive payment until the participant retired or otherwise was entitled to a distribution--which provided that the participant would recapture the alternate payee's account if the alternate payee died before the participant was entitled to a distribution.

What to do if the plan provides that an alternate payee is a participant for purposes of beneficiary designation, but the alternate payee relies on the QDRO and designates no one--or, designates someone other than what the plan would provide, or designates someone other than what the QDRO or the Plan would provide? I would first look to the QDRO. But, as the Administrator, in tough situations with substantial $$, I think I'd file an interpleader--i.e., pay the account balance to the Court, file a lawsuit joining the appropriate parties (i.e., the potential beneficiaries), and let them duke it out . . .

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DC, separate account.

While I didnt see any such statement in the OP and since some divorce lawyers still think that the AP can assign a surviving spouses' interest in a DB plan to heirs (I think Q made the assumption tha it was a dc plan with a separate interest), if this is in fact a separate interest in a DC plan then it is the property of the AP as beneficiary and payable to her estate or heirs as provided under the default provisions of the plan.

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  • 2 weeks later...

What about a DB plan with a seperate interest QDRO that allows the AP to name a beneficiary? I know that the Shelstead court left the possibility open, but I haven't seen any definite authority one way or the other. AP died pre-distribution.

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What about a DB plan with a seperate interest QDRO that allows the AP to name a beneficiary? I know that the Shelstead court left the possibility open, but I haven't seen any definite authority one way or the other. AP died pre-distribution.

Does the plan permits an AP to designate a beneficiary for a separate benefit? As held in Boggs v. Boggs state law cannot require payment of a DB benefit to an hier of a ex spouse under a divorce decree if the plan does not allow a survivorship interest.

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Does the plan permits an AP to designate a beneficiary for a separate benefit? As held in Boggs v. Boggs state law cannot require payment of a DB benefit to an hier of a ex spouse under a divorce decree if the plan does not allow a survivorship interest.

Thanks for the help, mjb. The plan is silent as to an AP designating a beneficiary. It doesn't pay any death benefits other than to a spouse in the case of the QPSA (or the J&S options for post-retirement distribution). I was thinking that the AP should be treated as a participant for purposes of the QPSA, with benefits payable to the new spouse?

If that isn't the case, is the AP's share of the benefit forfeited or does it revert to the participant? There is no reversionary language in the QDRO itself, the only language dealing with survivorship states: "The AP shall have the right to designate the beneficiary of any survivor benefits from the AP's interest payable after the AP's death."

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Does the plan permits an AP to designate a beneficiary for a separate benefit? As held in Boggs v. Boggs state law cannot require payment of a DB benefit to an hier of a ex spouse under a divorce decree if the plan does not allow a survivorship interest.

Thanks for the help, mjb. The plan is silent as to an AP designating a beneficiary. It doesn't pay any death benefits other than to a spouse in the case of the QPSA (or the J&S options for post-retirement distribution). I was thinking that the AP should be treated as a participant for purposes of the QPSA, with benefits payable to the new spouse?

If that isn't the case, is the AP's share of the benefit forfeited or does it revert to the participant? There is no reversionary language in the QDRO itself, the only language dealing with survivorship states: "The AP shall have the right to designate the beneficiary of any survivor benefits from the AP's interest payable after the AP's death."

The AP's rights are no greater than any other beneficiary. If there are no death benfits payable to the heirs of any non spouse then no death benefits can be paid to the AP's heirs. The AP would be entitited to surviving spouse benefits only if the QDRO provided for such benefits. But surviving spouse benfits terminate at the death of the spouse.

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And what about the portion of the participant's accrued benefit that was carved out for the AP? If the QDRO is silent on the matter, would that revert to the participant or would the AP's portion of the benefit simply be forfeited? I appreciate the help.

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  • 6 years later...

And what about the portion of the participant's accrued benefit that was carved out for the AP? If the QDRO is silent on the matter, would that revert to the participant or would the AP's portion of the benefit simply be forfeited? I appreciate the help.

Does anyone have any thoughts on this question? I'm running into the same thing now.

DB Plan. Plan doesn't really say what happens if AP dies prior to commencing benefits. Some are arguing that the AP's portion of the benefit is forfeited to the Plan. Others say that the amount reverts to the P.

Neither the P nor the AP have commenced benefits since the P is still too young. And, the QDRO states that the AP's benefit amount is determined as of the date the P could start receiving benefits (so earliest retirement age). But, again, P has not yet reached that age.

So if AP is treated as a terminated vested participant, then we have to wait until P could have received his benefit, then determine the AP's portion of that benefit, then distribute the benefit to the AP's estate or beneficiary. But, that's about 10 years out since that's how long it will be before the P reaches earliest retirement age.

But Plan is silent as to reversion or forfeiture.

Thoughts? Thanks.

You cannot bash in the head of an American citizen without written permission from the State Department.

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Why are proper, tight QDROs so hard to find? Any decent QDRO will say what to do if the AP dies first before commencement, if the AP dies first after commencement, if the participant dies first before commencement or if the participant dies first after commencement. Not rocket science!

Always check with your actuary first!

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QDRO says that if AP dies before commencement, benefit goes to her beneficiary unless that's prohibited by the Plan. The QDRO then says that if the plan does not permit a beneficiary, then the benefit reverts to the Participant.

The problem is the Plan document is silent to both points, both as to whether an AP can have a beneficiary and to whether the benefit reverts to the Participant.

So, instead of complaining about why QDROs and Plans aren't drafted more clearly, how about contributing your thoughts on the best way to resolve this issue?

You cannot bash in the head of an American citizen without written permission from the State Department.

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From above: The QDRO says the "benefit goes to her beneficiary unless that's prohibited by the Plan" and "the Plan document is silent".

This tells me the plan has no language that "prohibits the benefit from going to the AP's beneficiary" and that the terms of the QDRO apply, unless you know of something else, another rule, policy, or procedure that the plan has adopted to prohibit that.

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Thanks for your thoughts.

Along those same lines, could it be argued that the plan doesn't have language that ALLOWS a beneficiary for an AP?

When the Plan talks about benefit payments, it talks about Participants and Beneficiaries. It doesn't say anywhere that a beneficiary can also name a beneficiary (so if there's no spouse and the Participant has his mother as the beneficiary, I don't believe the mother can also name a beneficiary).

So, the question becomes whether the AP is treated as a separate Participant, or simply as a type of beneficiary. And, this particular instance becomes even a little tougher since, in order to figure out what the AP's benefit would even be, we'd have to wait until the P is old enough to potentially retire since the formula for the AP's benefit hinges on how much his benefit is at his retirement age (either early or normal).

This Plan has always approached it as though the benefit would be forfeited and would go back to the Plan. The Participant is stating that it should revert to him (in essence pretending like no portion of his benefit was ever assigned). I have a feeling the AP's beneficiary/estate would make a claim that they're entitled to it.

*Edit*

In looking at the Plan, I came across the definition of Alternate Payee:

An "Alternate Payee" shall include any Spouse, former Spouse, child or other dependent of a Participant or Former Participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to such Participant or Former Participant.

That to me says the AP is not treated the same as a Participant, but instead more like a beneficiary. The Plan language isn't right on point, but I think it can be argued with a straight face and rather strongly that the Plan does not permit a beneficiary to name his/her own beneficiary as well.

You cannot bash in the head of an American citizen without written permission from the State Department.

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In my opinion this could be a coin flip. However there is a judicial rule of construction of contracts which states that in an adhesion contract an ambiguity in the terms of the contract shall be construed against the drafter. Since the pension plan is an adhesion contract because the terms are entirely drafted by the plan sponsor, the ambiguity of whether the AP's benefit goes to her beneficiary unless prohibited by the plan where the plan is silent on this question should be construed in favor of the ex spouse's beneficiary.

Question for plan fiduciary is whether there is some basis in the plan for resolving the ambiguity to deny the benefit if a claim for benefits brought by an heir of the ex spouse.

mjb

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