Participant Completes Distribution Ppwk - then dies

[austin3515]

Participant filled out his forms indicating he wanted a rollover, and then dies before the rollover is processed. The money is in a pooled account so it takes some time for everything to line up. I say "the participant's election is still valid, and administrative delays should not affect it."

But I suppose if the beneficiary in the plan is different than the beneficiary of the IRA there cou8ld be a dispute.

Has this been addressed anywhere?

[FormsRstillmylife]

The Plan Administrator would be safe to follow through on the distribution to the IRA. It is not bound to recognize the intervening event that occurred after the irrevocable election (assuming the Plan and form state or imply the election is irrevocable).

In a real sense the beneficiary designation on the IRA is the participant's most recent written designation and was meant to supersede prior designations. Let the IRA custodian interplead if there is a fight.

[Everett Moreland]

See IRS PLR 200204038, here: ftp://ftp.irs.gov/pub/irs-wd/0204038.pdf.

That ruling does not answer the plan interpretation question of whether the rollover should be completed even if not tax-free. My guess is that most plans would be interpreted to give the benefit to the beneficiary, not to the IRA.

[FormsRstillmylife]

The cited letter ruling pre-dates the qualified plan provisions for nonspouse beneficiaries rolling to an inherited IRA. This is now considered an eligible rollover distribution.

[jpod]

Unless the plan document says something different (which is doubtful), anything in the plan at death goes to the plan beneficiary. I don't see a basis for handling it any other way. That's not to say there won't be a lawsuit if the IRA beneficiary is different than the plan beneficiary, but if the plan administrator fears that I suppose it can file an interpleader action.

[J Simmons]

So do those of you who think that the 'signed, sealed and delivered' election should not be followed always call the distributee the moment before issuing the rollover check to make sure the distributee is yet alive (and thus that the death beneficiary provisions do not override that election)?

I doubt it.

Here, of course, the Plan officials have learned of the death before the election was acted upon. Does the death beneficiary of the rollover IRA have a claim against the PA for being dilatory in effecting the turned-in election before the EE died?

I think that the death beneficiary provisions are for benefits left when the EE died and had not set some payout in motion before his or her death. It's for those instances where the death occurred before the EE could make arrangements. Here, the EE made the arrangements.

I am coming down in favor of following the election over the death beneficiary. Of course, if the plan provides specifics about which should apply--a turned in election or the death beneficiary provisions--then I'd follow that.

I don't really see this as a tax qualification rule, except following the written document and giving it reasonable interpretation. So I do not see an IRS ruling being authoritative on this question.

[Belgarath]

I vote with JSimmons.

As an aside, in a different situation but with a similar principle involved - some years ago I was having a discussion with a claims examiner for a life insurance company, and he told me that if a customer signed a surrender form for a life insurance policy, and then died before the surrender had been processed, that the face amount of the insurance was NOT paid to the beneficiary. Only the surrender value was paid - presumably to the owner or owner's estate, and not the beneficiary, but our discussion didn't go that far. For whatever reason, I found this very surprising, but I'm not sure why...

[austin3515]

I voted teh same direction as jsimmons and let the distribution go (not a lot of money actually), but I definitely agree with this interpretation. The man made his wishes known... It wouold bother me ignoring his wishes just because he died...

[Everett Moreland]

The cited letter ruling pre-dates the qualified plan provisions for nonspouse beneficiaries rolling to an inherited IRA. This is now considered an eligible rollover distribution.

The rule allowing a nonspouse beneficiary to elect a direct rollover does not validate a direct rollover as a result of this participant's election. i.e. IRC § 402©(11) does not apply to a direct rollover as a result of this participant's election.