May a plan’s administrator ignore a participant’s trust document?

[Peter Gulia]

A profit-sharing retirement plan provides as its only form of distribution, whether for a retirement distribution or a death distribution, one single-sum payment of the whole account balance.

 

A participant dies before receiving a distribution.

 

The participant, with her spouse’s consent to meet ERISA § 205, had made and delivered to the plan’s administrator a beneficiary designation:  “ABC Bank, N.A.”

 

The plan’s administrator receives a claim signed by a person identified as a trust officer of ABC Bank.  The administrator does not doubt the claim’s authenticity or genuineness.  The claim asks the plan to pay the bank (and does not request that the plan treat the payment, or any portion of it, as a rollover).

 

In the envelope with the claim form is a copy of a 13-page trust document and a transmittal letter that says:  “Following 26 C.F.R. § 1.409(a)(9)-4, Q&A-6(b)(2), we enclose a copy of the participant’s trust document.”

 

The plan’s administrator believes it need not read the participant’s trust document.  Rather, it believes its duty is limited to satisfying itself that the claimant is the beneficiary the participant named (and directing the plan’s trustee to pay that beneficiary).

 

The plan’s administrator is thinking of sending ABC Bank a letter informing the bank that the administrator did not read the trust document the bank furnished, and promptly destroyed it.

 

BenefitsLink mavens:

 

Must the retirement plan’s administrator read the participant’s trust document?  Or is it okay to ignore it?

 

Assuming the administrator had no duty to read, and did not read, the participant’s trust document, must the administrator keep the document in the plan’s records?  Or is it proper not to keep a writing the administrator never considered?

 

About the proposed letter to inform the bank that the administrator did not read, and no longer can read, the participant’s trust document, is this a good idea, or a bad idea?

 

On all three questions, what is the reasoning for your answer?

 

[CuseFan]

i would hope the beneficiary designation was the bank as trustee of the trust and did not just list the bank itself as beneficiary. if that is the case, I don't see any reason for the PA to go through the trust agreement after establishing to its satisfaction that the bank is the trustee to this trust. As only a person or a trust can be named a beneficiary (right?), if the form did simply name the bank as beneficiary then I think the validity is in question and it's more complicated. In that case a review of the agreement might be warranted, but I might suggest legal consultation, especially if someone other than the surviving spouse is trust beneficiary.  As far as document retention, it doesn't hurt to keep. 

[jpod]

Any individual OR entity can be an ERISA plan or qualified plan or IRA beneficiary, e.g., a charity.  I believe you are thinking of the 401(a)(9) rules that only allows individuals and certain trusts to be considered "designated beneficiaries," but that is solely for purposes of those rules.  There is nothing in the law that prevents someone from naming the United States, or General Motors, as his death beneficiary.       

[david rigby]

Yeah, tossing the document seems silly to me, and does nothing to prove "I didn't read it."  Nor is there any harm with reading it.

The primary duty of the PA is to make sure the death benefit is paid to the beneficiary, as properly defined in the document.  So the participant elected/created this trust, but is it meaningful to the plan?

[Bird]

I guess the PA is trying to proactively absolve itself of responsibility by telling the bank that it didn't read the document and in fact destroyed it.  I don't know if that accomplishes anything; would have to ask for a legal opinion.

I don't know that we'd read the document but probably wouldn't destroy it. 

Our process would be to get the beneficiary to complete our option election forms and complete the payment.  Part of that would be getting the tax id # for the...trust.  It seems pretty obvious that the bank is the trustee of a trust and that a clearer designation would be "ABC Bank, NA, Trustee of the Jane Doe trust dated.xx/xx/xxxx" but I think the designation as written is ok.  Is that what the concern is...?  What's the issue here?

[Peter Gulia]

Thanks, everyone, for the helpful ideas.

The plan's administrator is worried that, unless it does something to negate a potential mistaken assumption, the bank might presume that the administrator should have informed the bank if the administrator saw a defect or problem in the participant's trust document.

The 401(a)(9) rule on furnishing information about a trust to a plan's administrator makes some sense if the administrator must decide a point that needs the information.  But if a plan's provisions make it unnecessary for the administrator to know who is or isn't a designated beneficiary, receiving information beyond what's required on the plan's claim form (including the claimant's name, address, and taxpayer identification number) is a distraction.

[Bird]

Mmmm, I agree that superfluous info is a distraction.  I guess I've been tempted to do something similar when people send too much information, and maybe even have returned or otherwise informed the provider that I don't want it.  But then you run the risk of getting into a pissing match or otherwise wasting a lot of time on something silly.  Like a lot of things, it probably depends on my mood at the time.  (I did hesitate before posting my initial response, and again before this one, so I must have more time on my hands than I think .)

[Mike Preston]

tl;dr