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Beneficiary... can someone waive their right?


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Some plans allow a beneficiary to disclaim a death benefit; some plans do not.

If a beneficiary makes a legally valid disclaimer that the plan’s administrator accepts, the retirement plan benefit will be distributed (or distributable) as if the disclaimant had died before the participant’s death (or before the creation of the benefit disclaimed).

If a beneficiary makes a valid disclaimer that also meets all requirements of Internal Revenue Code § 2518 (see 26 C.F.R. § 25.2518-1, § 25.2518-2), the disclaimed benefit will not be in the disclaimant’s estate for Federal estate tax purposes, and will not be the disclaimant’s income for Federal income tax purposes. Some States have a similar rule for State estate or inheritance tax purposes.

To be effective for Federal tax and retirement plan purposes, a disclaimer usually must meet all these requirements:

1.      The disclaimer must be made before the beneficiary accepts or uses the disclaimed benefit.

2.      The disclaimant must not have received any consideration for the disclaimer.

3.      The benefit must pass with no direction by the disclaimant.

4.      The disclaimer must be in writing, and must be signed by the disclaimant.

5.      The writing must state an irrevocable and unqualified refusal to accept the benefit.

6.      The writing must be delivered to the trustee, custodian, insurer, or plan administrator.

7.      The writing must be so delivered by nine months after:

a.       the date of the participant’s death, or

b.      the date the beneficiary attains age 21, whichever is later.

8.      The disclaimer must meet all requirements of applicable or relevant State law.

To write a disclaimer (and to get advice about what the plan’s administrator would accept), the beneficiary might consult her estate-planning lawyer.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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So Peter, what happens if the plan doesn't "allow" a beneficiary to disclaim? Suppose the plan eventually cuts a check to the beneficiary, and the beneficiary refuses to cash it, etc., etc. - and maybe this gets into deep mud, and please don't waste a lot of time on this on my account - just idle curiosity on my part. Thanks.

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BenefitsLink neighbors, let’s turn this into a survey.

Does your set of plan documents:

1)        expressly provide for a disclaimer?

2)        say nothing about a disclaimer?

3)        expressly preclude a disclaimer?

And if a plan’s document is silent, would you interpret it to:

a)         permit a disclaimer?

b)        preclude a disclaimer?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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2a 

11 hours ago, Belgarath said:

Suppose the plan eventually cuts a check to the beneficiary, and the beneficiary refuses to cash it

Spouse would have until RBD so can't really force out sooner, and once you start RMDs (issuing checks), she can sit on them all she wants but they are still taxable distributions to her, so that may change her mind. Disclaiming can mitigate that if possible. Why not take now, roll over, leave tax deferred for children/grandchildren/whoever upon her passing? Or take, pay the taxes on and then gift the rest as desired. 

Spouse should discuss with financial advisor, and plan has time for her to make up her mind.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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I am a bit lost.  Are we talking about a defined benefit plan or a defined contribution plan?  What is a "death benefit"?  I have never hear the funds in a defined contribution account referred to as a "death benefit".  That term is used when describing the proceed of a life insurance policy.  I have only heard of funds passing to the beneficiary of a defined contribution account as the "account balance".   

If husband and wife have a joint saving account at the local bank and one of them dies, the other does not receive a "death benefit".  

BTW, there is no benefit to dying.

David

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Peter’s summary is very professional and as usual dead spot on.

As a trust department head early in my career I thought disclaimers apply for estate purposes regardless of what the plan says based on estate and trust law- my memory from law school is that there is a uniform code of estate administration/ practices/ rules that can be adopted by the states but I could be having a senior moment.

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No plan I have ever represented has had a provision on disclaiming benefits. In the few instances this has arisen, we have permitted the beneficiary to disclaim the benefit, as long as the requirements were met.

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CuseFan and Patty, thank you for confirming that many documents are silent, and that many administrators might interpret such a document to not preclude a disclaimer.

fmsinc, many retirement plans, including individual-account plans, use the lingo “death benefit” or “death distribution” to distinguish between a distribution to a participant on or after her severance-from-employment or attainment of a specified age (a “retirement distribution”) and a distribution to a beneficiary after the participant’s death.

Bob the Swimmer, your memory is good. Many States have laws based on uniform laws or model laws recommended by the Uniform Law Commission. A majority of States have laws based on one or both versions of the Uniform Disclaimer of Property Interests Act. https://www.uniformlaws.org/committees/community-home?CommunityKey=7118ea8a-f4f9-4b0a-be20-d918c59bd650

That current recommended law states: “A person may disclaim the interest or power even if its creator imposed . . . a restriction or limitation on the right to disclaim.” But a State law cannot compel an ERISA-governed plan to accept a disclaimer. ERISA § 404(a)(1)(D), § 514. However, a State law might affect whether a disclaimer is respected for Federal tax purposes, or accepted by a retirement plan’s administrator.

Every plan document I write (and even others’ documents I supplement) includes a detailed provision on what makes a disclaimer acceptable.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter, so what about the 401(a)(9) regs under 1.401(a)(9)-4 that say a beneficiary will not be considered a designated beneficiary for purposes of 401(a)(9) if a valid disclaimer is in effect under 2518 by 9/30 of the year following the year of the employee's death? If your plan document incorporates the 401(a)(9) regulations by reference (as some do), haven't you by default, bought into the above disclaimer regime in those regulations, and could a failure to follow a valid disclaimer under 2518 (provided by 9/30 in the year following death) potentially mean disqualification (either as a 401(a)(9) violation or a failure to follow plan terms)?

Also, could a person who would receive the benefit in the event of a disclaimer sue the plan administrator (for the benefit they would have received) for not following it?    

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It’s an interesting line of reasoning. And if a person seeking to get a disclaimer recognized were my client, I might consider using that reasoning with other arguments.

The minimum-distribution rule includes: “Accordingly, if a person disclaims entitlement to the employee’s benefit, pursuant to a disclaimer that satisfies section 2518 by that September 30 thereby allowing other beneficiaries to receive the benefit in lieu of that person, the disclaiming person is not taken into account in determining the employee’s designated beneficiary.” 26 C.F.R. § 1.401(a)(9)-4/Q&A-4(a) (emphasis added).

The rule recognizes the possibility that a plan’s administrator might recognize a disclaimer.

But there is no Federal statute (and no rule or regulation interpreting a Federal statute) that requires (whether as an ERISA command, or as a condition of IRC § 401(a) tax treatment) a plan to recognize a disclaimer.

(For a governmental plan or a church plan, if not ERISA-governed, one would consider applicable and relevant State laws.)

If a plan’s administrator plausibly interpreted the plan to not require recognizing a disclaimer, I doubt a contingent beneficiary’s claim for a benefit, or action for equitable relief on a fiduciary’s breach, would succeed. Many plans’ documents grant the administrator powers to interpret the plan. At least since February 21, 1989, courts defer to a fiduciary’s exercise of that discretion unless an ostensible interpretation is so obviously unreasoned that it is an abuse of discretion.

(The result might be different in an interpleader action. Courts sometimes interpret ERISA by filling a perceived gap with Federal common law.)

All that observed, I imagine many practitioners would interpret a plan that does not expressly preclude a disclaimer to allow a qualified disclaimer.

Such an interpretation would be logically consistent with a common-law idea that a person ought not to be compelled to accept a gift.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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  • 2 weeks later...
On 4/14/2022 at 6:43 AM, Peter Gulia said:

BenefitsLink neighbors, let’s turn this into a survey.

Does your set of plan documents:

2)        say nothing about a disclsimer?

And if a plan’s document is silent, would you interpret it to:

a)         permit a disclaimer?

The less that a Doc tells them they can or can't do the better!(i.e. top-paid group election in the adp/activity test b.s.)

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