Beneficiary Rights

[Fielding Mellish]

Multiemployer defined contribution plan qualified under 401(a). Unmarried participant dies. A proper beneficiary designation form was completed naming the participant's sister as beneficiary.

Can the plan have provision stating that the beneficiary can leave the money in the plan and elect any distribution (other than a QJSA) that the participant could have chosen? For example, lump sum, periodic installments, non-periodic installments.

Or, does ERISA or the Code require that the plan state that the beneficiary must receive a lump sum or roll the money over to his/her own IRA?

I have recently heard conflicting advice on this. One very large investment house remains adamant that the plan MUST distribute the money in a lump sum to the beneficiary. They said that the plan is there for participants and alternate payees only.

I had another person say that, no, the beneficiary can leave the money in the plan.

Have any of you ever dealt with this?

Thanks.

[Lou S.]

It depends on the provisions of the plan.

There is the 5 year rule and the 1 year rule. The Plan must comply with one of the two rules but it can allow for the beneficiary to make an election or it can state the rule it will follow and not give the beneficiary discretion.

So when in doubt read the terms of the Plan Document.

[Bird]

Our (Fort William VS prototype style) plans have these options, so unless these plans have a major flaw, yes, a plan can provide for extended payouts:

9. Payment upon Participant's Death

Distributions on account of the death of the Participant shall be made in accordance with the following:

a. [ ] Pay entire Account balance by end of fifth year for all Beneficiaries in accordance with Sections 7.02(b)(1)(A) and 7.02(b)(2)(A) only

b. [ ] Pay entire Account balance no later than the 60th day following the end of Plan Year in which the Participant dies

c. [ ] Allow extended payments for all beneficiaries in accordance with Sections 7.02(b)(1)(A), (B) and © and 7.02(b)(2)(A) and (B)

d. [ ] Pay entire Account balance by end of fifth year for Beneficiaries in accordance with Sections 7.02(b)(1)(A) and 7.02(b)(2)(A) and allow extended payments in accordance with Sections 7.02(b)(1)(B) and © and 7.02(b)(2)(B) only if the Participant's spouse is the Participant's sole primary Beneficiary

e. [ ] Other:

[Peter Gulia]

Fielding Mellish, your query described the plan as a multiemployer plan.

Is the plan maintained by more than one employer and collectively bargained with a labor union?

Or is the plan a multiple-employer plan, whether an "open MEP" or a multiple-employer plan with sufficient associations that the plan is reported as one plan?

If the plan is not a single-employer plan, is there something about the plan's intended uses that led the plan's sponsor to a design choice about how quickly a beneficiary must take a distribution?

[Fielding Mellish]

Thanks all.

It's a multiemployer plan in that it is collectively bargained with a labor union.

I have several different plans like this. Some say beneficiary must take it in a lump sum right away and some say the beneficiary has all the options as a participant (except the QJSA).

My problem is that I've received guidance from some people who should know that (1) anything but a lump sum is prohibited by the law; and (2) you can offer whatever you want.

In other words, I'm getting some conflicting advice. I wondered if anyone had ever run into some true authority from the IRS either from an agent or from a rev. proc, PLR, or Code/Regulation section.

[Belgarath]

Why not just ask THEM to provide citations for their assertions?

[Peter Gulia]

If your query is about what provisions a plan could state, include in your research this source:

26 C.F.R. §1.401(a)(9)-3 (Death before required beginning date).
http://www.ecfr.gov/cgi-bin/text-idx?SID=b7164a4975c47a7cfc960c662879a745&mc=true&node=se26.6.1_1401_2a_3_29_3_63&rgn=div8

[GMK]

This link may also be helpful:

https://www.irs.gov/pub/irs-tege/epchd603.pdf

As Lou S. said, you still have to check the plan doc/adoption agreement to find out what beneficiary distribution options the plan has selected.