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We've had several deaths (post-SECURE Act) in different defined benefit plans, unfortunately, by participants who did not have designated beneficiaries on file.  Our defined benefit plan (volume submitter master) document identifies the following hierarchy for distributions to non-designated beneficiaries:

  • surviving Spouse;
  • children, per stirpes;
  • surviving parents, in equal shares;
  • estate.

My overall question is - under current regulations, is a defined benefit plan permitted to make a distribution to an Inherited IRA (via direct transfer) to a non-designated beneficiary?

If yes or maybe, does it matter who the non-designated beneficiary is?  We have the following true scenarios to deal with:

  1. Terminated Participant A (died age 64 before NRA) has a surviving Spouse, and the distribution amount is over $5000.  Also, the plan is terminating.
  2. Active Participant B (died age 32) only has one minor child, and the distribution amount is under $1000.  The plan is ongoing.
  3. Active Participant C (died age 56) only has surviving parents (both older than age 72), and the distribution amount for each parent is between $1000 - $5000.  The plan is ongoing.
  4. Terminated Participant D (died age 64 before NRA) has no Spouse, no children, nor any surviving parents, so his estate will receive the distribution; and the distribution amount is between $1000-$5000.  Also, the plan is terminating.

All participants were 100% vested at termination or at death.  NRA = Normal Retirement Age as defined by the plan.

In addition, these participants were also in 401(k) plans sponsored by the same Plan Sponsors as the defined benefit plans.  Does your answer to any scenario change depending on the plan type?

I think the answer for all four scenarios for both plan types is: No, none of these non-designated beneficiaries can elect to direct transfer their distributions to an Inherited IRA.

If I'm reading the Inherited IRA rules and plan document correctly, the reason none of these scenarios can result in a direct transfer to an Inherited IRA is because none of the beneficiaries were designated as beneficiaries by the Participants.  However, I rarely need to handle distributions due to death, so I am seeking input from more knowledgeable retirement plan practitioners.  Thank you for your help.  

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Belgarath is correct, "designated" beneficiary under IRS regs does not require the participant's actual designation. See reg 1.401(a)(9)-4, particularly Q&A-2.

If you have access to ERISApedia.com, chapter 6 of their Qualified Plan eSource has a good discussion of this.

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.

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