Beneficiaries

[Nassau]

My client called with the following question this morning: A distribution due to death was processed from a deceased participant account to his primary beneficiary. Prior to taking any action on the account the primary beneficiary also passed away. The client doesn't have any beneficiary designation on file for the primary bene. Would the money go to the spouse of the deceased beneficiary or would the money be transferred to the secondary beneficiary of the deceased participant?

[david rigby]

Many plans address this by defining a contingent beneficiary.

[masteff]

A distribution due to death was processed from a deceased participant account to his primary beneficiary.

You have the answer right here... the participant's account was transferred to the beneficiary. That beneficiary account belongs to the beneficiary who then becomes entitled to name his/her own beneficiary or in the absence of a designation have the plan default apply.

[david rigby]

... processed from a deceased participant account to his primary beneficiary.

If this means that the account has already been transferred to the beneficiary, prior to the beneficiary's death, then masteff's comment is exactly correct. But if the quote means something else, then you may have to search the plan document for direction on how to define a contingent beneficiary.

[jpod]

Does the plan allow the beneficiary to designate a beneficiary? If so, but the beneficiary did not designate a beneficiary, then presumably the plan provides for a default beneficiary in this instance.

More likely, however, the plan is silent, and does not purport to allow the beneficiary to designate a beneficiary, in which case I would expect that the estate of the beneficiary is the beneficiary.

This better be handled correctly. There could be a nasty dispute over this, unless the dollars are very small. Lots of competing interests: spouse of beneficiary (if any), children of beneficiary (if any), creditors of beneficiary, etc.

[Bird]

More likely, however, the plan is silent, and does not purport to allow the beneficiary to designate a beneficiary, in which case I would expect that the estate of the beneficiary is the beneficiary.

That's what I'm inclined to think. Unless there is language specifically saying that the bene has to take possession of the money, I think that the rights would pass to the estate.

[Guest jims]

It's possible the plan could have some general language that gives "participants" a more broad meaning. Potentially, you think of participants as account holders who have named beneficiaries and unnamed beneficiaries. Account holders could be participants (that are/were employees), beneficiaries, and alternate payees. That may be another perspective to consider when you are reading the document to determine what should happen.

[My 2 cents]

My understanding is that upon the death of the participant, whoever is the beneficiary gets the benefit (unless there is a plan provision requiring survival for a specified period, failing which would result in the beneficiary being treated as not having survived the participant).

Assuming that the beneficiary is considered to have survived the participant, all contingent beneficiaries become irrelevant. The proceeds belong exclusively to the beneficiary. And that would be whether any action has occurred to transfer the assets or not.

The beneficiary then having died, it would be necessary to look at the plan provisions and/or applicable state laws to determine who would receive the proceeds on account of the beneficiary's death. Presumably, if there is nothing there to the contrary, the beneficiary's estate would be the answer.