No Estate

[BTG]

I have seen similar posts on here over the years, but have been unable to locate one with a definitive solution.

Assume that a DB plan participant dies without naming a beneficiary. Under the Plan's default beneficiary structure, the death benefit goes first to the spouse, then to any descendants, then to the estate. The participant doesn't have a spouse or any descendants. If no one opens an estate proceeding, what are the plan sponsor's obligations?

• Is the sponsor required to open the estate proceeding itself?
• Does the sponsor simply hold the funds and be prepared to pay in the event that a claim is ever made?
• Does the sponsor have an obligation to use some sort of good faith efforts to locate next of kin (similar to a missing participant situation), to ask them to open the estate? What if they refuse (e.g., due to the cost)?
• Perhaps some other solution?

Thanks for any ideas!

[Peter Gulia]

What benefit does your hypothetical plan provide to a nonspouse beneficiary?

How did the plan's administrator discover that the participant had died? If it received a death certificate, who furnished the certificate?

What evidence did the plan's administrator receive that causes it to believe that the participant has no surviving spouse?

A related difficulty is whether a plan's administrator must act affirmatively to cause the plan to pay a required minimum benefit if doing so would require the administrator to decide a beneficiary's identity before anyone has submitted a claim (or the administrator has denied all claims submitted). In the past 31 years, I haven't found fully satisfying answers to the tension between rushing to meet a 401(a)(9) provision and taking time to decide the correct distributee.

Reaching-out efforts might invite false claims, and might do so in circumstances in which the administrator might lack evidence to help it detect a false claim.

For a situation in which a distribution is required but the plan's administrator has no ready payee, has any BenefitsLink reader had an experience with paying a distribution to a court of the county in which the administrator believes the decedent to have resided (based on the participant's address in the plan's records)? If so, did paying a distribution to the court help, or make the situation more difficult?

[My 2 cents]

As a general rule (as I understand it), just as we all have shadows, we all have estates (the practical significance of each being a matter of facts and circumstances). Be assured that if the death benefit were a lump sum payment of $50,000, a way would be found by the participant's survivors to establish an estate and to distribute its contents!

[BTG]

Thank you for your thoughtful questions, Peter. To answer (at least some of) them:

The plan provides a small (~$3k) lump sum preretirement death benefit to the beneficiaries of unmarried participants. Because it is a preretirement benefit, often times the plan sponsor discovers that the participant has died when they stop showing up to work.

We have had clients pay amounts into court (known as an interpleader action) where the issue was contested and several people claimed to be the proper beneficiary, but not where (as here) there is no claim. In the contested situation, it has generally worked out pretty well, but it has at times required the plan to stay involved in the suit longer than we would have liked.

[BTG]

M2C, I agree with your premise that we all have estates. However, as a practical matter, what does the plan administrator do with the benefit if nobody opens up an estate proceeding? Can/should the plan administrator commence such a proceeding itself?

I also agree that a significant benefit would cause the participant's heirs to open up a proceeding, but that assumes that they have knowledge of the benefit. This begs another of my original questions: What obligations does the plan administrator have to attempt to locate and properly identify the participant's heirs?

[david rigby]

What obligations does the plan administrator have to attempt to locate and properly identify the participant's heirs?

Maybe none?

In general, the plan pays to those eligible who make a claim. As long as you aren't hiding, I suggest the plan does not have an obligation to seek out a potential beneficiary, especially when such potential beneficiary is not obvious.

[BTG]

Thanks, David. That is increasingly the conclusion that I'm reaching on this, although I would certainly be interested to hear any competing viewpoints. It seems reasonable for the Plan to simply stand ready to make payment in the event that a claim is ever made (somewhat analogous to a missing participant who can't be located).

[Peter Gulia]

If by the 401(a)(9) required beginning date no one has submitted a claim, the plan's administrator might consider making a record to explain why it decides that it is imprudent to pay a distribution.