Corbel's GUST DC Proto, Basic Plan #01

[J Simmons]

I have only a passing familiarity with Corbel's documents, but have a question involving a plan using such documents at this time.

On Monday, the Supreme Court issued its decision in Kennedy v Plan Administrator of the DuPont Sav. and Investment Plan, Docket #07-636, settling a Circuit dispute as to whether a waiver of benefits violates the anti-alienation rule. The Court said no, it does not, provided that the plan document permits it, the waiver is made per the plan procedures, and the waiver does not designate who the successor beneficiary will be.

In my brief review of the Corbel document identified, I have found no spot where there is provision for waivers of benefits.

Does anyone know definitively if there is or is not?

[K2retire]

Isn't this the case where the ex-wife received the payment and the daughter sued?

I don't see anything about a beneficiary waiving benefits, but the beneficiary designation section under Article VIII says "A divorce decree, or a decree of legal separation, revokes the Participant's designation, if any, of his/her spouse as his/her Beneficiary under the Plan unless: (1) the decree or a QDRO provides otherwise; or (2) the Employer provides otherwise in an Addendum to its Adoption Agreement."

[J Simmons]

Thanks, K2retire.

Kennedy v Plan Administrator of DuPont Savings is the case where the ex-wife received payment and the daughter (i.e., the estate) sued.

In that case, the Supreme Court noted that the QDRO there was a nullity because it did not award an interest in a portion of the employee's benefits to the ex-wife. The divorce order labeled a 'QDRO' did not serve as an adequate waiver of the ex-wife's interest as the named death beneficiary. That is because the 'QDRO' did not satisfy what that plan required procedurally of waivers.

The Supreme Court observed that a qualified retirement plan is not required to permit waivers. For those plans that do permit waivers, the plan must not allow the waiving person to direct where the waived benefits will go. Waiving is okay, but the waiving person directing where the waived benefits would go would if honored be a violation of the anti-alienation requirement that applies to ERISA pension plans.

I provide estate planning services in addition to ERISA legal services. A common technique we use to permit post-death manipulation to whom the remaining plan benefits will go is naming every conceivable possibility in successive order of contingencies following the prime beneficiary. Then we do disclaimers to the point we get the benefits to go to whom it makes most sense.

The problem I have is that right now I am assisting an employee plan his estate and the plan he participates in uses the Corbel prototype. I cannot locate in it where it permits waivers (or disclaimers). Does that mean that the plan would nevertheless pay to the primary beneficiary if she survives the employee's death, even if the primary beneficiary tried to disclaim that benefit right after the employee dies?

Does Corbel's new DC Prototype (EGTRRA class one) have a provision for waivers (or disclaimers)? If not, this will greatly limit the flexibility that successive disclaimers have permitted in the estate planning context if the person's benefits are in a plan that is Corbel documented.

Any thoughts are appreciated, particularly if anyone can direct me to where in the Corbel DC Prototypes, GUST II or EGTRRA, where waivers/disclaimers are permitted.

[Guest Sieve]

John --

You may disagree, but the following leads me to believe that a disclaimer meeting IRC Section 2518 requirements is a permissible alienation under Corbel's EGTRRA prototype (or at least can be seen as such under a reasonable administrative interpretation):

"10.3 ALIENATION

(a)

General rule.

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.)

Whaddya' think?

[J Simmons]

What do I think?

I think that by its terms, IRC § 2518 applies to Subtitle B, Estate and Gift Taxes (IRC §§ 2001-2801), and not Subtitle A, Income Taxes (IRC §§1-1563).

I think that if the Corbel document specified IRC § 2518 qualifying disclaimers would be honored by the plan, as the DuPont plan did by reference, then the plan administrator would need to honor disclaimers meeting the requirements of Treas Reg § 25.2518-2.

I think that if the plan using the Corbel document does not also have adopted a written policy specifying that the plan will honor disclaimers (since it appears that the Corbel document does not mention them either way), the successive disclaimer estate planning could be thwarted by the Plan Administrator choosing to prudently ignore all disclaimers due to the lack of mention and out of concern that if paid to the next in line beneficiary, the one that attempted the disclaimer could later change her mind and or her estate assert a claim against the plan that the benefits are due and owing despite the earlier disclaimer--sort of like how the Kennedy situation unfolded.

I think I would advise the estate planning client that we ought not to pin his planning on what we hope the plan administrator of a Corbel documented plan (with no written disclaimer policy) might do with an attempted disclaimer.

I think I would advise a plan administrator of a Corbel plan that receives an attempted disclaimer to immediately adopt a written policy to cover the issue of disclaimers not covered by the Corbel document.

[Guest Sieve]

You're probably right, John. At a minimum, you've described an appropriate and safe approach for an administrator.

I find it interesting, by the way, that the IRS considers a waiver by means of a proper and timely Section 2518 disclaimer to be sufficient to eliminate that individual from being considered a designated beneficiary under IRC Section 401(a)(9), and indicates that such a waiver "allow other beneficiaries to receive the benefit in lieu of [the disclaiming individual]". (Treas. Reg. Section 1.401(a)(9)-4, Q&A-4(a).) Seems like that language is tacit--or better--approval of an exception to the anti-alienation rule resulting from a Section 2518 waiver (after all, it was a similar point in the IRS amicus brief that was the critical turning point for the Supreme Court in Kennedy v. DuPont--see fn. 7 and corresponding text). And, although it probably doesn't rise to the level of an "exception. . . otherwise permitted by the Code" (Corbel Basic Plan Document, Section 10.3), I would argue it long and hard if necessary to support payment pursuant to a Section 2518 disclaimer.

But, that's a reactive position, and your position is proactive. And, proactive's good.

[J Simmons]

Hey, Larry,

I would sum up what the Supreme Court did in the Kennedy case as noting or ruling that:

1-The DoL has vacillated on whether all disclaimers would violate the anti-alienation requirement, but currently is of the position set forth in #2 below.

2-A plan may allow disclaimers of plan benefits without violating the anti-alienation requirement.

3-The anti-alienation rule would be violated if the plan honored an attempt by the disclaimant to direct where the benefits would then go (other than to the next in line under the plan’s default terms or the employee’s successive designation).

4-The plan fiduciaries are required to implement the plan as written, including specification of ‘the basis on which payments are made to and from the plan’.

5-The successor beneficiary’s claim to benefits depends on the terms of the plan, “a straightforward rule of hewing to the directives of the plan documents that lets employers ‘establish a uniform scheme, [with] a set of standard procedures to guide processing of claims and disbursement of benefits.’”

6-By giving a ‘plan participant a clear set of instructions for making his own instructions clear, ERISA’ obviates the need for any ‘enquiries into nice expressions of intent’ or assessing any ‘federal common law of waiver’, allowing the plan administrator to simply act in accordance with the plan documents and instruments—and ignore documents and acts that do not measure up to that ‘clear set of instructions’—thereby avoiding double liability.

7-The Supreme Court did ‘not address a situation in which the plan documents provide no means for a beneficiary to renounce an interest in benefits.’ Footnote 13. Which is the situation of the Corbel prototype (and the prototypes of some other document providers too).

I'm wondering if you saw anything differently than these 7 points.

[Guest Sieve]

I don't disagree with your analysis of the Kennedy case.

However, absent proper language which specifically permitted a waiver (as per Kennedy) that occurred years ago, I would point to Section 10.3 as the only Corbel prototype language that could be used as sufficient "after-the-fact" justification for accepting a Section 2518 disclaimer and paying pursuant to that waiver (based on plan terms which, I would argue, permitted a disclaimer based on that Section 10.3). On a go-forward basis, on the other hand, I would agree with you that a waiver/disclaimer policy ought to be in place.

And I thank you for raising this issue, because I, for one, probably would have overlooked it and authorized (under the Corbel prototype) payment based on a Section 2518 disclaimer without a formal waiver policy in place.

[J Simmons]

As an ERISA practitioner advising employers, I see the Kennedy decision as a gift (building on the Englehoff decision). If the employer specifies in writing a procedure for employees and beneficiaries to give clear instructions, then the plan administrator may ignore those efforts that do not follow that procedure. This type of certainty is something for which most clients yearn.

This concept should apply not only to designating beneficiaries, revoking designations, and disclaiming benefits, but also to procedures for electing deferrals and directing investments, as well as procedures for handling orders received to determine if they are QDROs.

[PLAN MAN]

How's this for certainty? The new EGTRRA restatment document provides for an automatic revocation of spousal designation by stating a divorce decree, or a decree of legal separation, revokes the participant's prior designation, if any, of his/her spouse or former spouse as his/her beneficiary under the plan unless a QDRO provides otherwise. Nowhere does it state the divorce decree or decree of legal separation must be provided to the Plan Administrator for the revocation to take place.

So, in operation, do you think the Plan Administrator must now determine if such a decree exists before paying any benefits to the named beneficiary, if that beneficiary is or was a spouse? How else will they know if the beneficiary designation is revoked?

[J Simmons]

How's this for certainty? The new EGTRRA restatment document provides for an automatic revocation of spousal designation by stating a divorce decree, or a decree of legal separation, revokes the participant's prior designation, if any, of his/her spouse or former spouse as his/her beneficiary under the plan unless a QDRO provides otherwise. Nowhere does it state the divorce decree or decree of legal separation must be provided to the Plan Administrator for the revocation to take place.

So, in operation, do you think the Plan Administrator must now determine if such a decree exists before paying any benefits to the named beneficiary, if that beneficiary is or was a spouse? How else will they know if the beneficiary designation is revoked?

Yes. I would think that the Plan Administrator could simply insist on the death certificate of the employee, where for most states the marital status at the time of death is listed, before determining if the designation has been revoked by a divorce. For the date of the divorce in relation to the designation, the Plan Administrator would need to dig deeper.