457(b) Beneficiary Dispute

[Darrylle Garcia]

My father was a state employee and participant in a 457(b) plan. When he passed away my sister and I were named beneficiaries. We each inherited 50% of our father's account. I rolled my account over to Vanguard. My sister kept her account with the plan. We both received RMDs each year due to my father's age. The plan proactively asked my sister for a beneficiary designation. My sister responded and named me as her beneficiary. On every quarterly statement my sister received I was listed as her beneficiary. Unfortunately, my sister passed away. She was never married and without children. She was ill for a number of years before she passed. I was her caregiver.

My sister has a will and a living trust. She also has a document that lists accounts where I was listed as her beneficiary. Her inherited 457(b) account is on that list and I am listed as her beneficiary. When I called the plan to notify them of my sister's passing the plan confirmed on multiple recorded calls that my sister named me as her beneficiary and the plan accepted her beneficiary designation. Again, her beneficiary designation appears on every quarterly statement. I had planned to roll this account over to Vanguard. I called the plan with a couple of questions about the withdrawal form. The form is a mess (I have since learned that the withdrawal form doesn't conform with the terms of the plan document.) A supervisor called to respond to my questions about the withdrawal form and told me that the plan doesn't allow for a beneficiary to name a beneficiary. The terms of the plan state that a lump sum will be paid to my sister's estate. I was upset by this new info from the plan. 

How can anyone do any meaningful estate planning if the plan accepts a beneficiary designation that it won't honor? I reminded the plan that my sister had passed away. The time to correct the plan's error was before she had passed so that my sister could've acted on the information the plan provided. My sister was aware of the benefits of tax deferred money. She could've rolled the account over to an inherited 401(k) outside of the plan to preserve the tax deferred status of the account and also name me as her beneficiary.  My sister reasonably relied on the information she received from the plan when they solicited her beneficiary designation and published it on her statements. The plans errors led to this issue.

The plan is pointing to the plan document which they interpret to prohibit a beneficiary from naming a beneficiary. I never submitted a formal claim. I asked questions about the claim process via phone and email. Even though I never completed the withdrawal form nor did I submit a death certificate (the plan states a certified death certificate is required to make a claim on an account over $100k), the plan sent me a denial letter and directed me to communicate with one plan employee. The employee has not responded to my email messages since I've received the denial letter. The denial letter states, "any costs incurred by the plan in defending a legal action related to this claim shall be charged to the Benificiary's remaining funds, to the extent permitted by the law." However, the plan document states, "No Reversion. The Plan shall have no right, title or interest in the assets of the Trust. No part of the assets of the Trust at any time shall revert to or be paid to the Plan, directly or indirectly." 

Does anyone have any advice? My sister intended for me to be able to maintain this account in a tax deferred status. Instead, the plan says it will make a lump sum payment to my sister's estate. I believe the plan's errors led to this issue. In my eyes as a layperson, the denial letter they sent and the plan document are carelessly written. 

 

[Gina Alsdorf]

Unfortunately the trust document will generally govern disputes. You should request a copy of the plan document on behalf of the estate, and read the language for yourself.