When must a beneficiary decide her minimum distribution?

[Peter Gulia]

A § 401(a)-(k) plan’s only participant dies without having begun a distribution, and before the plan, following Internal Revenue Code § 401(a)(9), required a distribution.

Assume the plan allows a beneficiary the widest possible choices about a distribution, with no more constraint than is necessary to meet § 401(a)(9) rules.

The participant had no spouse.

The participant’s beneficiary is not an eligible designated beneficiary.

The participant’s death was September 17, 2025.

Assume all possibly relevant years are the calendar year.

What is the latest date for the beneficiary to specify to the plan’s administrator any choices the beneficiary might make regarding the form of a distribution and when it begins?

What is the latest date a plan’s administrator may wait until, absent the beneficiary’s choice, one must impose the plan’s default minimum distribution?

I imagine I could sort this out by reading the tax law regulations, but I’m hoping a BenefitsLink neighbor can save me some time. Thanks.

[Artie M]

Based on the assumptions and plan silent, the beneficiary is subject to the SECURE Act 10-year rule. Because death occurred before the participant's RBD, there are no annual RMDs during years 1-9 and the statute would require the entire account be distributed by December 31, 2035.

Different result under pre-SECURE Act, where the September 30 beneficiary determination date and December 31 first-distribution-year deadlines often drove election timing. For a non-EDB inheriting from a participant who died before the RBD, the SECURE Act's 10-year rule largely eliminates those earlier distribution-election deadlines.

[Peter Gulia]

A tax law rule suggests a beneficiary need not begin one’s distribution until about ten years (or a little more) after the participant’s death.

“Distributions satisfy this paragraph (c)(3) if the [participant’s] entire interest is distributed by the end of the calendar year that includes the tenth anniversary of the date of the [participant’s] death.” 26 C.F.R. § 1.401(a)(9)-3(c)(3) https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)(9)-3#p-1.401(a)(9)-3(c)(3).

On my hypo, the beneficiary’s distribution need not begin until December 2035. (It must be completed by December 31, 2035.)

If no one submits a claim, may the plan’s administrator do nothing to impose a minimum distribution until December 2035?

Or am I missing something?

[Artie M]

Don't think so.  I am not aware of a §401(a)(9) rule (or other) that would require or permit the administrator to force a distribution before 2035 merely because the beneficiary has failed to file a claim, assuming the plan document itself does not contain an earlier distribution provision.  Under your facts, there is no annual RMD amount that must be imposed/distributed before 2035. Rather, the requirement is that the entire remaining account be distributed by December 31, 2035.

Given your area of interest, I also think there is also the issue of fiduciary prudence and missing-participant administration until 2035.  That is, to ensure proper distribution, the administrator should: 

• Properly identify the beneficiary or all the beneficiaries;
• provide required notices and distribution information to them;
• maintain records;
• make reasonable efforts to locate a missing beneficiary if necessary; and
• continue to administer the account under the plan.

It would be especially important to make periodic communications or outreach attempts to ensure that a beneficiary doesn’t end up becoming a lost beneficiary so, if the beneficiary remains simply unresponsive, invoke the plan's default distribution provisions sufficiently before the 2035 deadline to ensure the distribution is actually completed by December 31, 2035.

[Peter Gulia]

Beyond anything about imposing a plan’s involuntary § 401(a)(9) distribution, a plan’s administrator might, after a participant’s death, turn on the beneficiaries’ investment-direction powers and disclosure communications.

But that’s if the plan’s administration knows the death happened.

If no communication addressed to the participant gets a bounce-back or not-delivered, the plan’s administration might have no reason to classify the participant as “missing” or not located.

If no one submits a claim for a death benefit, the plan’s administration might not know that a participant died.

It might be unwise to try to determine a participant’s beneficiaries if the plan’s administrator has not first found that the participant died.

Although a plan I advise might run a yearly or quarter-yearly sweep on participants’ identifying information, the findings often are inconclusive.

And some efforts to confirm that a participant is alive and still receiving the plan’s account statements and other communications can risk identity thefts and other frauds.

Some efforts might be helped a little if some participants don’t opt out of a once-a-year paper communication.

[Artie M]

I thought your facts assumed death.  Also, if the participant was the sole participant it seems likely the plan sponsor would know if they died.  Also as a sole participant, I question whether the plan sponsor continues to exist... solo 401k or what, or, if it does continue to exist, it could terminate the plan and force the distribution.

[Peter Gulia]

In the facts of my OP, the decedent’s limited-liability company is the plan’s sponsor and the plan’s administrator. The human who has become the company’s successor manager knows the participant died.

Although the plan sponsor could end the plan, the plan sponsor—and the decedent’s beneficiary—might have reasons to continue the plan, perhaps over the next ten years, or even more.

After we discerned that a plan’s administrator might not, if no one has submitted a claim, always need to act right away, I imagined another situation, much different from my OP, in which a plan’s administrator doesn’t which participants have died.

I regret confusing any reader with my undescribed thinking-out-loud journey, and thank you for taking the thought exercise with me.

[rocknrolls2]

I am in full agreement with everything that was said in this thread. I did want to make one comment. Since your basic assumption was that the beneficiary was a non-EDB, this presupposes that the qualified plan in question is a defined contribution plan. In the case of a defined benefit plan, however, the SECURE 1.0 10-year rule does not apply and the beneficiary's status as an EDB (or not) is irrelevant.