401k participant deceased and beneficiary deceased before any distribution made

401k participant terminates employment due to disability in 2020 (entitling him to an immediate distribution under the terms of the plan) and dies 4 months later.  No distribution made to participant following his termination and prior to his death.  Primary beneficiary alive at this time however she dies 10 months later in 2021.  No distribution to primary beneficiary before her death.  Participant's benefit still in plan and under $1,000.  Plan administrator is trying to determine the proper party to receive distribution of account and get the money out of the plan.  Based on the timing, I would think the primary beneficiary was entitled to an immediate distribution upon the participant's death in 2020 and because she subsequently died, the distribution should go to her estate.  We do not know if an estate was opened but we have contact information for her daughter (the sister of the participant).  Could the plan administrator issue a check to the "Estate of [Mother]" and mail it to her daughter?  Then her daughter can decide whether the open an estate? Or would it make more sense to just rollover the account to an IRA as provided in the plan's small cash-out provision?

You should check the Plan Document, but I believe when this has come up in the past the answer was almost always the Estate of the Primary Beneficiary who should receive the payment. But if you are paying it to an estate, don't you need the estate's TIN to issue a 1099-R?

If there is a only $1,000 and there aren't a lot of other assets, it's possible that no estate was opened.

Since you used the term "primary beneficiary", perhaps there is, either by affirmative action or by plan provision, a secondary beneficiary.  Check the company personnel file for any other possible beneficiary election, and then check the definition in the plan document.  Hint: the document might define someone else before the estate.

BTW, you will eventually pay someone (estate or a real person), don't forget the withholding rules:  an estate is not eligible to open an IRA, so a payment to an estate is not rollable, therefore the (usual) 20% withholding does not apply.  Next in line is the "other withholding" rate of 10%, but the estate has the right to elect zero withholding.  Read the instructions for the W-4R form.  

https://www.irs.gov/forms-pubs/about-form-w-4r

Before other steps, check all records available to, and facts known to, the plan’s administrator to look for whether there is a surviving spouse.

Look for the participant’s designation of a contingent beneficiary.

Then, RTFD—Read The Fabulous Documents.

Mainstream plan documents typically set an ordering regime to determine a beneficiary or beneficiaries when no participant-named beneficiary is alive.

Don’t imagine or guess what’s provided. These might vary with choices made by an investment provider, service provider, document provider, or even a document user. It might even vary within one provider by different service platforms’ documents or different vintages of documents.

After finding, if not the identity of the default beneficiary, at least the relationship that makes one a default beneficiary, RTFD (and any provisions assumed under a remedial-amendment regime) to consider carefully whether a minimum distribution is required.

If possibly relevant regarding the plan’s provisions, consider whether the default beneficiary is or might be an eligible designated beneficiary.

If the plan does not require a minimum distribution, consider whether an involuntary distribution is mandated, permitted, or precluded.

Don’t assume a rollover; not every distribution is eligible for a rollover.

If, after carefully following the plan’s default-beneficiary ordering, a default beneficiary is a decedent’s estate, consider whether the plan’s administrator would approve or deny a claim from a claimant who shows not a court’s appointment as a personal representative but rather a small-estate affidavit.

This is not advice to anyone.

Further, seeing how much effort this might be to dispose a < $1,000 account, should the plan sponsor consider writing more efficiency into the plan’s provisions?

17 hours ago, david rigby said:

Since you used the term "primary beneficiary", perhaps there is, either by affirmative action or by plan provision, a secondary beneficiary.  Check the company personnel file for any other possible beneficiary election, and then check the definition in the plan document.  Hint: the document might define someone else before the estate.

It's been a while, but ... would the "secondary" (or "contingent") beneficiary be relevant only if the "primary beneficiary" predeceased the participant?  Once the participant dies, if the "primary beneficiary" is still alive, don't they effectively step into the shoes of a participant -- such that they would basically have their own beneficiary?

24 minutes ago, Lois Baker said:

only if the "primary beneficiary" predeceased the participant? 

Lois, that is my understanding and about to opine such until scrolling down to your post. Once the participant dies, if the primary beneficiary is living, that beneficiary becomes the account owner, so to speak, and any secondary contingencies the participant had are moot.

“If the Beneficiary does not predecease the Participant, but dies prior to the distribution of the death benefit, the death benefit will be paid to the Beneficiary’s ‘designated beneficiary’ (or if there is no ‘designated Beneficiary,’ to the Beneficiary’s estate).” That’s from a document a big recordkeeper provides its customer. (The copyright notice does not name the text’s author.)

While that might be a possible beneficiary-ordering regime (and might appear in many service providers’ forms for plan documents), it’s not the only beneficiary-ordering regime, even before looking for a default beneficiary. A plan’s document might not state a beneficiary’s-beneficiary provision, and might provide something else—for example, exhausting all participant-named beneficiary designations, primary and contingent, before turning to anything else.

Unless an adviser already knows what its particular advisee’s plan document provides, consider many BenefitsLink neighbors’ reminder: RTFD—Read The Fabulous Document.

Peter is correct about deferring to the plan terms.  When plans are confronted with estate beneficiaries, they often want to pay to the estate fiduciaries, who may be determined by local law. Such law may provide for summary procedures that permit specified persons to become the personal representative of the estate. In those cases the small estate affidavit goes to the court which issues a certificate of authority that the plan may defer to in the same way as it would defer to letters testamentary for executors and letters of administration for other personal representatives. See e.g. NY SCPA 1304