Beneficiary If No Form On File (Divorce / Biological Child / Step Children)

Just took over a case where they didn't have any beneficiary forms on file.  There is a participant who just recently passed away.  He has an ex-wife, who he divorced before the Plan ever started so I don't believe she's a factor here.

He has one biological child and step-children.

Would his entire balance then go to his lone biological child?  That's what I'm thinking, I just wanted to confirm.

Thanks in advance!

If no one has filed a claim and the plan doesn’t yet command an involuntary distribution, there might be little or nothing the plan’s administrator need decide now.

If you’re satisfying your or your client’s curiosity, Read The Fabulous Document.  Although a document might make the participant’s children a default beneficiary, a document might set different provisions.

If a default-beneficiary provision refers to children without further specifying who is included in or excluded from that class, the plan’s administrator might interpret the plan.

Unfortunately the participant recently passed away, so we need to make a decision on who the money is going to go to.

If the participant’s distribution had not commenced and the plan’s provisions do no more than is needed to follow Internal Revenue Code § 401(a)(9), consider whether the plan might not command an involuntary distribution until the end of the tenth calendar year that follows the year of the participant’s death.

The plan should have provisions for how to proceed if no beneficiary is designated or a designated beneficiary predeceases the participant. It is also required to say how and when to pay benefits upon death, including minimum required distributions (timing and amount), as referenced by Peter. As gets stated over and over in this forum - read the document, it has all (or nearly all) the answers.

1 hour ago, metsfan026 said:

Unfortunately the participant recently passed away, so we need to make a decision on who the money is going to go to.

Break it down into bites:

1) what does the document say?  Probably that with no bene, the default is spouse, otherwise children...but you need to do that research. An Ex-wife is not a spouse so it probably effectively mean children.

2) were the step-children adopted?  If so then they are his children and share.  If not then they are not his children and don't share.

If anyone sees any room for fuzziness here please advise.

Thanks everyone, that was exactly what I was thinking.  Unfortunately, currently I only have the adoption agreement but not the document that the agreement created.  I'm hoping to get my hands on that, but I just wanted to confirm

As others have stated, the plan document is the first resort. It will usually contain a default beneficiary, with a priority scheme similar to the following: spouse, children, siblings, participant's estate. If the plan doesn't specify, then the benefits should be distributed to the participant's estate. Who benefits from there depends on state law and the participant's will. I would not recommend waiting 10 years to pay out a death benefit even if it is technically permitted. The participant's estate will likely be closed at that point. The executor and beneficiaries of the estate may have died. Their estates may have closed. Interested parties may have moved several times without updating the plan with their new addresses, if you can even figure out who they are. You are going to have an administrative nightmare on your hands. You don't want to pay the wrong person, but at some point you need to close the book. The exception is where beneficiaries want to maximize their tax position by delaying receipt of benefits as long as is permitted by law and plan's terms, and in that case, hopefully they will keep in touch, and hopefully the plan sponsor will have had some idea of what they were getting into when they put that provision into the plan to begin with. 

Beyond the practical concerns AKowalski mentions for considering whether and what to communicate to a potential beneficiary, here’s another.

If the plan provides participant-directed investment, a fiduciary might welcome a claim in which someone seeks recognition as a beneficiary.

A plan might provide that a power (and obligation) to direct investment passes to a beneficiary, for his or her separate-share subaccount, when the administrator decides the claimant is a beneficiary, even if the beneficiary does not request a distribution.

A plan’s fiduciary can get ERISA § 404(c) protection for a beneficiary’s actual or treated-as investment direction.

Otherwise, a plan’s fiduciary (if it knows the participant died) might have responsibility to consider the prudent investment of the participant’s account.

Got my hands on the document and it states:

In the absence of any other designation, the Participant will be deemed to have
designated the following Beneficiaries in the following order: (1) the Participant's Spouse (if then living);
(2) the Participant's issue, per stirpes; and (3) the Participant's estate.

Therefore we are going to distribute the money to his lineal child, not the step-children who were not adopted