JW Posted April 22, 2024 Posted April 22, 2024 We have a situation where an unmarried participant died not having a named beneficiary for the 401k plan. However, they named a beneficiary for their life insurance benefits with the employer. It was their aunt. The Plan Administrator took it upon themselves to let the aunt know that there was a balance in the 401k account in addition to the life insurance benefit and approved a distribution to her, without any other paperwork (court order, etc.). The Plan Document states that without a designated beneficiary the account balance goes to the participant's spouse (in this case there was none) and if no spouse to the estate. The estate did not go to probate and the Plan Administrator is attempting to determine if there are any other relatives etc that this may have needed to go to. Would this be considered a prohibited transaction that needs to be disclosed on Schedule G as a non-exempt transaction?
Peter Gulia Posted April 22, 2024 Posted April 22, 2024 If the distributee was not the beneficiary: A transfer of plan assets to a party in interest might be a prohibited transaction. ERISA § 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1106%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1106)&f=treesort&edition=prelim&num=0&jumpTo=true Was the aunt a party in interest? Unless the aunt was the employer’s employee or had some connection to the plan or the employer, the aunt might not have been a party in interest. ERISA § 3(14), 29 U.S.C. § 1002(14) https://uscode.house.gov/view.xhtml?req=(title:29%20section:1002%20edition:prelim)%20OR%20(granuleid:USC-prelim-title29-section1002)&f=treesort&edition=prelim&num=0&jumpTo=true This is not advice to anyone. CuseFan and Bill Presson 2 Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com
CuseFan Posted April 22, 2024 Posted April 22, 2024 Agree with Peter. Even if you don't have a PT you could have an operational defect. If the aunt was sole beneficiary to the estate, no harm no foul maybe but Plan Administrator needs to get all the facts (not to mention follow the terms of the Plan). Bill Presson 1 Kenneth M. Prell, CEBS, ERPA Vice President, BPAS Actuarial & Pension Services kprell@bpas.com
Peter Gulia Posted April 22, 2024 Posted April 22, 2024 Just a curiosity: If a plan's sponsor and administrator decide (for whichever reason, or for no reason) not to correct a failure to obey the plan's governing documents, is there anything that must be shown in a Form 5500 report? Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com
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