DB question from a DC person..

[Guest stevena1]

I am not familiar with DB plans so bear with me...

We have a DB plan where participants receive a monthly periodic payment. One of the participants is in a nursing home and apparantly on Medicaid. Her daughter has been calling us and requesting that we send her periodic payments from the plan not to her mothers bank account, but to the nursing home's bank account.

At first blush I just thought this was nuts. The plan document says there are no assignment of benefits allowed, so that was one thing. But even aside from that, I was thinking how would the 1099s and the taxability of this work?

But then the story got more strange...

One of the department of finance heads from the nursing home called. She explained to me that I did not know how Medicaid "worked", that all the residents of her home had always had their payments go directly into the nursing home's bank account. Then, Medicaid actually pays the difference between what was deposited into the nursing home from each resident and what the bill is from the nursing home. The finance head told me that was "par for the course" and "how Medicaid worked".

I asked who the 1099-R was mailed to, and she told me she did not know, but that none of her residents filed taxes at all. Then I asked why they didn't file, and she said they had no income. I kept asking about the taxability of these payments, but she kept spinning my head in circles saying that by the time she got the money from her residents, the taxes were already paid. But the whole not having income thing...what about all the income from the periodic payments from this pension plan?

We have gone round and round for weeks...not only do I not know anything about DB plans, (dont worry, we have someone who does...Im just trying to help him out researching this weird question), but I know nothing about Medicaid.

Sent the question to TAG who said they had never seen anything that said Medicaid rules pre-empt a plan document rule, and they thought it would violate 401(a)(13).

Any thoughts on this? I decided if this was actually the way it DOES work, than I think I will find a way to get my employer to pay my bills FIRST, then give me a W-2 that says I made no money. I dont have to file tax returns and things would be grand.

This makes zero sense to me, but we have to answer the participant, who is very persistant...

thanks for any help.

[AndyH]

I once had a neighbor who took in disabled people including children and collected their social security disability checks. Turned out he even locked a couple of em in a basement room. I would hope that social security wouldn't mail the checks to the houseowner without the participant's notarized witnessed consent.

Then the issue would still be of endorsing the checks, unless of course it was a direct deposit arrangement.

Does this help?

p.s. my neighbors did lots of time in the big house BTW and this "House of Horrors" made national news. This was some 15-20 years ago. Maybe ask the "finance head" if he's ever heard the "House of Horrors" story.

[Effen]

sounds a little fishy to me as well.

I don't think they plan should authorize the change without express written consent of the participant and their (the plan's) attorney.

[Bird]

I think you're right to question this. If they want the money to be "direct deposited" they can set up something to sweep it from her checking account; you just can't do a "direct" deposit to a third party, IMO. And yes, you do your regular 1099-R filing. It's possible that most, maybe all, residents don't have to file because they don't have enough income, but that doesn't mean they don't have to get a 1099-R. Keep us posted.

[masteff]

An elder law website that seems helpful and touches on this subject:

http://www.elderlawanswers.com/elder_info/...e.asp?id=2751#6

Keep in mind that Medicaid varies by state so an exact answer would need to come from your state's agency.

I think what you're being told is generally right, but slightly misinformed as to certain technical aspects... it's the technical aspects that are tripping you up (and rightly so, until properly explained).

The income still belongs to the retiree. The retiree still receives a 1099-R. However, the requirements for Medicaid eligibility are such that persons on it are typicially close to the income limits for having taxable income. And default withholding is typically enough to cover what liability might be there. As a CPA I'd encourage those people to still run the numbers to be sure of any tax due or refund.

From your original post, it appears to be general practice (at least at that home) for the payment to be made directly to the nursing home... don't look at this as an assignment but as a courtesy provided by the home (and a way for the home to protect their interest in the monies). I'd bet your state's medicaid agency or an elder assistance program in a major city in your state that can confirm that this procedure is legal in your state. I agree w/ the others that I'd prefer the money go to the participant's own account and then be automatically transferred to the home, but if you're effectively destitute, it's hard to maintain an account of your own. The important thing as noted above is a properly notarized direct deposit election form instructing the funds go to that account.

[david rigby]

You, and the plan, don't care "how Medicaid works". The plan is responsible for paying benefits each month under the terms of the written document, not for determining how the recipient is spending the money. The person from the nursing home was describing a reimbursement and accounting procedure, not a Medicaid procedure.

[Andy the Actuary]

As my avitar shows, I'm a propeller head and not an attorney. Nonetheless, here's what I would advise and would follow if I were in your shoes:

(1) The recipient or recipient's power of attorney should send a written request to the Plan Administrater specifying precisely the action they desire taken. The request should include a copy of the power of attorney if applicable.

(2) Provide this request to your (firm's) legal counsel for an opinion and possibly a response to the requester.

[Blinky the 3-eyed Fish]

Seems to me like the participant can direct you (in writing) to have the money send to whomever and wherever they choose. They could direct you to take the check, pour salt on it and eat it for dessert , if you are willing to do it. As mentioned in other posts, the 1099-R is going to the participant, so there is no assignment of the funds.

So get it in writing and if it's not a big deal, send the check as the participant wishes.

Andy, I am glad your neighborhood is famous.

[Andy the Actuary]

Andy, I am glad your neighborhood is famous.

For the record, it's AndyH's and not Andy.t.a.'s neigborhood that is famous. I live in a harmonious, peaceful, and sleeply town. We only have shoplifiting, graft, political dawdling, and public scandal in my hood.

[Guest mjb]

States have different rules for determining medicad eligibility. In NY an incapacitated person is eligible for Medicaid if the asset threshold is met and any periodic retirement benefits are paid to the nursing home. The benefits can be endorsed to the NH by a valid POA.

Also since Medicaid is a federal law, any medicaid provisions allowing assignment of retirement benefits to the NH in order to become eligible for Medicaid would not be preempted under ERISA 514(d). Therefore you should be concerned how medicaid works since the failure to pay income to the NH could cost the employee his medicaid eligiblilty with possible collateral consequences for the plan.

Perhaps there is an answer on the medicaid web site.

In 2008 for single taxpayers over 65, the minimum income exempted from income tax is about $10,200. In 2005 about 1/3 of all taxpayers with income were in the 0% bracket.

[AndyH]

Andy, I am glad your neighborhood is famous.

For the record, it's AndyH's and not Andy.t.a.'s neigborhood that is famous. I live in a harmonious, peaceful, and sleeply town. We only have shoplifiting, graft, political dawdling, and public scandal in my hood.

For the record, my hood does not have, nor has had, as far as I know, a single smelly former math professor with a 4 foot beard creating explosive devices in his glorified outhouse and bicycling them to the post office for delivery.

Nor does my hood have nearly the celebrities as Blinky's between Elton, Richard Simmons, and that former cage fighter among many many others.

[Guest Sieve]

I won't comment on my neighborhood (you really don't care to know) or anyone else's (no matter what baseball team they root for). But, for what it's worth, I will point out the requirements of this type of qualified plan assignment from the regs: Treas. Reg. Section 1.401(a)-13(e).

Still taxable to resident of home, however. And, I know not to even venture into the Medicaid arena.

[Guest mjb]

I won't comment on my neighborhood (you really don't care to know) or anyone else's (no matter what baseball team they root for). But, for what it's worth, I will point out the requirements of this type of qualified plan assignment from the regs: Treas. Reg. Section 1.401(a)-13(e).

Still taxable to resident of home, however. And, I know not to even venture into the Medicaid arena.

but aren't payments subject to 10% withholding unless the participant ops out?

[Guest Sieve]

No. This is a periodic payment, and is subject to wage withholding (IRC Section 3405(a)(1)), but withholding can be waived (IRC Section 3405(a)(2)).

[tymesup]

The participant and/or daughter are calling you directly? The client is OK with you advising them?

I never thought I'd see this line on BenefitsLink:

"But then the story got more strange..."

[masteff]

The participant and/or daughter are calling you directly? The client is OK with you advising them?

Not everyone here is a TPA. Several of us are or were in corporate benefits departments.

[John Feldt ERPA CPC QPA]

Even if you received a written authorization to change the payee, I'm sure the plan does not allow the payee to be changed, except for QDROs, legal name changes, and upon death.

The mailing address is a different issue. Procedures for changing an address to mail the check are usually not in the plan document, but are up to the plan administrator. If you want a signed statement from the participant (or from their power of attorney designated to have power over pensiopn payments), then that should work. But that's not going to change the payee's name.

[Guest Sieve]

Of course, whether a written authorization to change the payee would be acceptable will depend on the plan document.

Corbel's volume submitter and prototype documents, for example, contain the following language: "Subject to the exceptions provided below and as otherwise permitted by the Code and the Act, no benefit which shall be payable to any person (including a Participant or the Participant's Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized except to such extent as may be required by law." (Emphasis added.)

I would intepret the underlined language to permit any assignment allowed under the Code & regs, which would include the procedure described in Treas. Reg. Section 401(a)-13(e)--although it would be far better to properly amend the plan to specifically permit such a redirction of a benefit payment.

After all, any plan without permissive language for redirection of a benefit payment is negligently drafted (do I have it right QDROphile?)

[Guest stevena1]

Thanks for all the responses.

The client specifically asked us to respond to the daughter, they are totally confused and know even less than I do about this (which is very little).

We did get instruction from the client to tell the daughter that they didnt want to proceed with sending payments to anyone but the participant. Of course that did not make the nursing home finance person happy, and they have been calling like crazy. In addition, we called the custodian who said they refused to send the payment to anyone but the account of the participant. We also called around to all our other custodians that we work with for DB plans, and none of them allowed payments to go to an account other than the participant. So I guess maybe I am thinking we can blame the custodian and maybe sic the nursing home on the custodian, so our phone will stop ringing? Im ready to pass the buck.

Amazing how something like this can just take up so much of your day....

[GBurns]

stevena1

Do the particpant and probably many other NH patients a favor. Call the state dept that handles Medicaid and tell them what happened and see what they say.

I have seen and heard of too many NH Medicaid and Medicare rip offs . This does not smell right to me.

And you will now have the opinion of someone whose dept has enforcement authority.