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Death Benefit to Minor Children


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Very strange situation.  Participant dies with no spouse.  He does have minor children.  The Plan document (FIS prototype) provides the order of payout.  Since no spouse, the payments will go to the children.  The Plan Trustee reached out to the parents of the deceased participant assuming that they would be the legal guardians.  The Parents will not respond to the Trustee.  At this point the Trustee wants to send the death benefit to the state's (Ohio) unclaimed funds.  We cautioned the Trustee that this was not the appropriate action to take.  The Trustee is totally fed up with the situation and is asking what he can do.

Does anyone know if there is an agency that can be contacted to obtain information on the legal guardian of the deceased Participant's children.  At least this would confirm who the Trustee needs to contact in order to pay out the death benefits. 

Any other suggestions would be greatly appreciated.

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Trustee?  Why isn't the Plan Administrator taking charge?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Why is the plan’s administrator so eager to pay?

The facts and circumstances you describe suggest that no one submitted a claim.

Even if the plan would provide an involuntary minimum distribution because the beneficiary’s required beginning date is a few days away (or the plan otherwise provides an involuntary distribution), an administrator might consider it prudent not to pay if the payee’s identity is not determined.

If an administrator needs or wants to put in an effort to identify a minor’s payee, an administrator might consider checking records of the court in which the decedent’s will likely would be admitted to probate and, if different, records of the court that has jurisdiction to appoint the minor’s conservator, guardian, or other fiduciary.

A search of publicly available records might be logically consistent, by analogy, with the IRS’s internal guidance directing an EP examiner not to challenge a plan’s tax-qualified treatment for failing to pay a required minimum distribution when the plan’s administrator has not located the distributee.

This is not advice to anyone.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Consider also that the Internal Revenue Service would not tax-disqualify a plan for a failure to administer the plan according to the written plan if one administers the plan according to the documents as later changed by a remedial amendment the IRS recognizes.

About § 401(a)(9)’s ten-year period regarding a beneficiary who is not an eligible designated beneficiary, for a participant’s minor child the ten-year period does not begin until “the date the individual reaches majority”, which the Treasury department interprets as 21 (even while recognizing that only one of the 50 States has an age of majority that late).

minimum-distribution rules proposed FR 2022-02522.pdf

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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This is a small plan.  The Trustee is the Plan Administrator.  I have no clue as to why the Trustee/Plan Administrator is so adamant about paying out benefits now.  No one has submitted a claim.

 

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Most plan documents have a provision stating that if money is to go to a minor or infirm person the plan administrator will determine who should receive the amount and is protected for having acted in accordance with the plan's provisions. I have never had to utilize such a provision, but it seems to me that such a provision would place a fiduciary obligation on the plan administrator to act with loyalty and prudence to the potential distributee. I would search the document for the term "facility of payment" to see if this plan has such a provision.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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