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Beneficiary determination - is the TPA on the hook?


ldr

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Good morning to all.  A client passed away last fall, and her sister popped up recently claiming to be the executrix of the estate and heir to all of the client's assets.  

We as the TPA do not keep beneficiary forms on file for any of our clients.   We inform them at the moment of engagement that they must be responsible for keeping up with the forms in their own offices in the employees' personnel files or something similar..

The sister of the deceased says she has not found a beneficiary form.  She says the deceased was divorced and that the ex-husband is deceased, and that they had no children. 

So far all she has provided to us is a death certificate for the deceased and a "Letters Testamentary" document with one sentence naming her as the personal representative of the estate of the deceased.  She is now pushing to have the deceased client's assets transferred to her.  The account balance of the client is held in an individually directed brokerage account with a well-known national brokerage house.

The plan document says that in the absence of a beneficiary form, the assets go first to the spouse, and if none, to the children, and if none, "such other heirs, or the executor or administrator of the estate, as the Plan Administrator shall select."  Bear in mind that the Plan Administrator was the client, who is dead.

1. To what extent are we as the TPA responsible for determining that the spouse is indeed an ex spouse, that he is indeed deceased, and that they had no children?  

2. Is more paperwork required that just this one liner naming this woman as the personal representative of the estate required to establish her as the executrix/personal representative?

3. Is this our problem or the brokerage house's problem that holds the funds?

4. Do we have to worry about being sued later if she lied to us and there is a current spouse/children?

5. Can the account be rolled directly to her without passing through the estate in this circumstance?

This is a first for us, so any experiences you can share/advice you can give will be greatly appreciated.

Thanks in advance.

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1 hour ago, ldr said:

Good morning to all.  A client passed away last fall, and her sister popped up recently claiming to be the executrix of the estate and heir to all of the client's assets.  

We as the TPA do not keep beneficiary forms on file for any of our clients.   We inform them at the moment of engagement that they must be responsible for keeping up with the forms in their own offices in the employees' personnel files or something similar..

The sister of the deceased says she has not found a beneficiary form.  She says the deceased was divorced and that the ex-husband is deceased, and that they had no children. 

So far all she has provided to us is a death certificate for the deceased and a "Letters Testamentary" document with one sentence naming her as the personal representative of the estate of the deceased.  She is now pushing to have the deceased client's assets transferred to her.  The account balance of the client is held in an individually directed brokerage account with a well-known national brokerage house.

The plan document says that in the absence of a beneficiary form, the assets go first to the spouse, and if none, to the children, and if none, "such other heirs, or the executor or administrator of the estate, as the Plan Administrator shall select."  Bear in mind that the Plan Administrator was the client, who is dead.

1. To what extent are we as the TPA responsible for determining that the spouse is indeed an ex spouse, that he is indeed deceased, and that they had no children?  

 

1.  If you are a TPA it is your job to make recommendations to the Plan Administrator.  You don't want the job or liability of making this determination.  As far as I am concerned the issue of who is the new PA is the first order of business.  Until that is settled this plan can't move forward on the issue of who is going to be paid this benefit.  

 

My guess is some of the lawyers that visit this site can give you better advice than I can on how to help your client move forward getting a new PA.  It is their job to determine who is the beneficiary.  It is your job to make recommendations to the PA to help them to do their job well. 

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You're wise to be cautious.  Take the following for what it's worth and probably touch base with an attorney.

The letters testamentary I've see specifically name someone as executor/executrix - I don't really know if "personal representative" is the same thing but different language for different states.

I am about 100% sure that you should not pay benefits directly to the individual; they should go to the estate.

If she is indeed the executrix, then you (and the brokerage house) should be taking direction from her* as the effective successor business owner (if your client was in fact the plan sponsor and a sole prop...if a corporation, I have to say I'm not sure, and if this was a(nother) participant in a plan sponsored by your client, then you take direction from your client).  *But not to the point of paying her directly.

Ultimately if there was some kind of fraud, she's the one with liability, but that doesn't mean you wouldn't get sued, especially if you didn't take reasonable precautions.

As an aside, we are willing to hold copies of bene designations.  I'm not sure why that is perceived as a problem, and it certainly is and has been helpful.

I have a good sense of how I'd handle this in my office but not sure how perfect this advice is.

Ed Snyder

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Thanks Bird and ESOP Guy!  Yes, this was a sole proprietor and the deceased client wore all the hats.  There are a couple of other rank and file participants who also have their own brokerage accounts.  We will be terminating the plan and it shouldn't be any problem to pay the employees out.  The big question is what to do about the account of the deceased owner and you are being very helpful with your thoughts.

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Does the sister, in her capacity as Executrix, have a lawyer?  If so, best option is to get a short letter from the lawyer confirming that the Executrix, acting as the Plan Administrator, has determined that there is no designated beneficiary and is entitled to receive the money on behalf of the estate of the decedent.     

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As an aside if it is determined an estate is the beneficiary that starts a whole new set of issues.  If this is a large amount of money than the estate will most likely have to get an EIN.  You pay and 1099-R the estate.  The estate has to pay the taxes on the income.  It is my understanding the beneficiary(ies) of the estate can not roll the funds to an IRA.  That alone is one of the biggest reasons to always complete a beneficiary form. 

So once you get past who gets paid your work might just be starting.  

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Yes, without a designation naming an individual as the beneficiary this was bad planning on the decedent's part, especially if there are creditors of the decedent who are going to take a big bite out of it, but so be it.  

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This might meet the definition of an orphan plan. There are rules under EPCRS for determining a new plan administrator and terminating an orphan plan. See https://www.irs.gov/retirement-plans/plan-sponsor/fixing-common-plan-mistakes-using-epcrs-to-terminate-an-orphan-plan

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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If she is a duly appointed executrix of the estate of the sole proprietor/plan sponsor?  One of her tasks should be to attend to the administration and termination of the plan.  Too bad for her if she's not interested in dealing with it.  

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19 hours ago, ldr said:

We will be terminating the plan and it shouldn't be any problem to pay the employees out.

Normally the trustee, your deceased client, would have to approve those transactions so it may not be so easy.  Assuming all is well with the sister being the executrix, she should be able to name herself as trustee and complete all of this.

Ed Snyder

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Thanks, everybody.  I will keep this updated as to how it goes.  We will also get in touch with an ERISA attorney we keep on retainer for special questions that come up like this.  Naturally we like to try to solve things on our own if we can but this may be an occasion where it's worth it to involve her.

 

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You can report the plan to the DOL as an abandoned plan.  Without a PA to certify the distributions, I doubt that you will be able to get the plan paid out.  The DOL can assign a fiduciary to take over the plan assets and arrange for the distributions.  The new fiduciary will get to take care of the headache of the distribution to the owner's beneficiary.  

Pamela L. (Bobersky) Shoup CEBS, RPA, QKA

AMI Benefit Plan Administrators, Inc.

100 Terra Bella Drive

Youngstown, Ohio 44505

800-451-2865

www.amibenefit.com

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I feel sure we will not go the "abandoned plan" route though it is still good to know about.  I think between her lawyer and our lawyer something simpler can be worked out.  It's an interesting case and I will post the outcome when we get that far.

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  • 2 weeks later...

Update:  Unbelievable but true, it turns out that the brokerage house had a valid beneficiary form on file from 2016 and the sister is named as the beneficiary.  Moral of that story is that just because the beneficiary can't find a copy of the form in the deceased client's papers, and we don't have one, that doesn't mean there isn't one - pick up the phone and call the broker!

Everyone involved has decided that the sister is sufficiently documented and empowered to handle the estate, so she's being allowed to function as the Trustee of the plan, and it's going to terminate like any other plan would.  

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