Death of participant

We have a 401(k) plan with a participant who died last year.  She has a sizeable amount in the plan (over $200k), and as far as the sponsor knows, she had no will and both her husband and daughter predeceased her.  They believe she has some adult grandchildren, but so far none has contacted them.

I suggested they contact one of the grandchildren to find out the status of her estate.  But the question arose as to what we do if no one asks for the money.  And also, what happens in a couple years when the participant would have turned 70 1/2 (RMD)?

Ideas??

Um... follow the plan document?

If all else fails I will take the money off everyone's hands! 

On a more serious note the document will tell you what to do. 

My guess is that you will find that the default beneficiary is the participant's estate.  Assuming that's the case, and putting aside RMD issues, for an account of that size you shouldn't even consider skipping the formalities.  You should pay the money only to the executor (if a will) or administrator (if no will), once he or she steps forward.

I absolutely defer to the attorneys or those who are more knowledgeable in this arena, but the plan probably has a "standard" default if there is no named beneficiary.  In ours, for example, the progression is surviving spouse; issue, per stirpes; surviving parents in equal shares; estate.

Jpod, I'm sure you can enlighten me. I'm under the impression that "per stirpes" can sometimes mean different things in different states, depending upon state law? But if there are grandchildren as per the OP, does that mean, in this case, that the grandchildren are considered direct beneficiaries of the plan, and therefore it wouldn't go to the estate? So let's say the only daughter predeceases the decedent - and the daughter had three children, all of whom are alive. Does it get paid in equal shares to those grandchildren? Thanks for any information you care to pass along.

Per Stirpes has to do with the splitting of the funds among siblings.  If it is per capita (the opposite of per stirpes) then if one of two siblings (who are the beneficiary class) has died, all the funds go to the remaining sibling.

Per stirpes is used to make sure the deceased sibling's share goes to the deceased siblings issue (children) if there are any.

Now, our documents also have default beneficiaries and include per stirpes as the method. Since the original question says there is belief of adult grandchildren, the plan administrator needs to hire a search service (if necessary) to find them since they would be the benes.  Finding the executor or administrator of the estate would be a logical starting place and you might start with one of your own legal contacts to find out how to search the probate records for the names executor/administrator of an estate.

Larry. 

We can't help the OP without knowing what the plan says.

The document is going to tell you who the beneficiary is if there isn't a valid beneficiary form for whatever reason. 

As for the question if no one shows up to claim the money the question then becomes at what point, if any, does that then fall under the lost participant section of the document?  But once you decide this is a lost participant the document drives the results.  And to me this is the only hard question. 

The first question- who is the beneficiary- is a simple question of going through the steps the document spell out for who the beneficiary is when there is no form. 

So I like I said before and people keep saying look to the document. 

While we’re discussing what Cynchbeast’s originating post describes as a potential situation (a possible need, before any claimant submits a claim, to pay something to meet a required beginning date):

Although a plan’s administrator reading the plan’s governing document might discern the role or relationship a person must have to be a default beneficiary, that doesn’t always mean one readily can locate or even identify the should-be claimant.

In many situations about a default beneficiary, an administrator might lack a record about a should-be claimant’s address, or even name.  That’s especially so if a search already has run past the decedent’s spouse and children.

For situations in which no one has submitted a claim for a retirement plan’s death benefit and the taker would be a default (rather than participant-designated) beneficiary, practitioners have a range of views about how much effort a plan’s administrator must, may, or should use to try to identify and communicate with such a would-be taker.

Also, there’s a range of views about how a plan may or its fiduciary should allocate those expenses.

4 hours ago, ESOP Guy said:

The first question- who is the beneficiary- is a simple question of going through the steps the document spell out for who the beneficiary is when there is no form. 

So I like I said before and people keep saying look to the document. 

Amen.  Not sure why this is generating so much blah blah blah.

On 3/9/2018 at 9:12 AM, Larry Starr said:

Per Stirpes has to do with the splitting of the funds among siblings.  If it is per capita (the opposite of per stirpes) then if one of two siblings (who are the beneficiary class) has died, all the funds go to the remaining sibling.

Per stirpes is used to make sure the deceased sibling's share goes to the deceased siblings issue (children) if there are any.

Now, our documents also have default beneficiaries and include per stirpes as the method. Since the original question says there is belief of adult grandchildren, the plan administrator needs to hire a search service (if necessary) to find them since they would be the benes.  Finding the executor or administrator of the estate would be a logical starting place and you might start with one of your own legal contacts to find out how to search the probate records for the names executor/administrator of an estate.

Larry. 

I respectfully somewhat disagree with Larry.  Per stirpes and per-capita refer to what portion people of differeing generations take in the event one (or more) of the bene's of the first generation pre-deceases - in the case of retirement plan - the participant.  You have "per stirpes" correct in allocation (each "lower generation" takes a share of what their parent would have taken had they not predeceased) - in that is there are two children, one of whom pre-deceased leaving three children of their own (grandchildren of the participant), then you "split" the account first at the level of the children, and the grandchildren share only their deceased parent's share.  This, in my experience, is the most common approach.

Per capita simply means you add up the total number of bene's who will take, and split it evenly among them.  In my above example, there is one surviving child and three surviving grandchildren (for a total of four bene's), so each would get a one-fourth share of the benefit.

In either "per stirpes" or "per capita" the children of predeceased bene's would get a share - the difference being in the amount each would get.  To "only" benefit one generation, the language would be something like "to my two children in equal shares, but in the even one of them predeceases me, then the entire balance of my account would go my surviving child" - and for good measure, I'd add in "and I specifically make no provisions for my grandchildren who are issue of any child of mine who predeceases me."  That effectively keeps the money at one generational level.

Mea culpa. Of course that is the correct definition of per capa. Havent dealt with that since I studied it in the early 70s. Actually, have never seen it used ever. And I'm willing to bet that the document under discussion has default provisions that include per stripes distribution. 

On 3/9/2018 at 4:37 PM, Larry Starr said:

Mea culpa. Of course that is the correct definition of per capa. Havent dealt with that since I studied it in the early 70s. Actually, have never seen it used ever. And I'm willing to bet that the document under discussion has default provisions that include per stripes distribution. 

I would agree that it most likely uses per stirpes....  It's been a while, but I have seen per-capita language - and boy does it create a brouhaha among the heirs (and the children of those who are still living....)

Recognizing some burdens a plan's default-beneficiary provision might put on a plan's administration, some plan sponsors might want to change the provision that otherwise would result from adopting a preapproved document.

(Assume a plan's sponsor would not change anything that puts a surviving spouse ahead of others.)

May an adopting employer change a default-beneficiary provision without losing reliance on the IRS's opinion letter?

Is this an "administrative provision" Revenue Procedure 2017-41 allows an adopter to change (without losing reliance, and without seeking a determination letter)?

Hmmm... I would say our default provisions are there exactly to relieve the burdens of not having a default scenario would produce.... but, I would think it could be changed without any reliance issues.

I don't think the original question has been answered yet.  Do we know who the beneficiary is?  We can't give an answer until we know who the beneficiary is.  

Many prototype and volume submitter based plan documents contain a "hierarchy" for purposes of defining beneficiary where a designation was not affirmatively elected by the participant. 

58 minutes ago, ERISAAPPLE said:

I don't think the original question has been answered yet.  Do we know who the beneficiary is?  We can't give an answer until we know who the beneficiary is.  

I think the original question has been answered as best as it can be.  If there was no form, which the question implies, then the document tells you who the beneficiary is. 

1 hour ago, ESOP Guy said:

I think the original question has been answered as best as it can be.  If there was no form, which the question implies, then the document tells you who the beneficiary is. 

The question is what do they do if nobody asks for the money.  The answer may be different depending on the identity of the beneficiary (or beneficiaries).  

@ERISAAPPLE, good point.  The ultimate question is what to do if no one asks for the money.  Most of the responses have centered on the question of "who is the beneficiary." 

To respond to the actual question, the plan should perform all reasonable steps to identify the beneficiaries.  There has been recent guidance on this question for RMDs and I suppose much of that guidance would apply to beneficiaries also, except that the guidance does not to my recollection discuss the steps that need to be taken to identify the beneficiaries.  

To that end, follow the plan document regarding identification of beneficiaries and timing of distributions, contact the register of wills where the participant died to see if an administrator/executor/personal representative was appointed, consult other relevant death records, etc.  It may be more costly than the RMD steps but, given the amount of money at stake, it seems reasonable to go further. 

And in looking to a register of wills or whatever court or office handles administrations or successions of decedents' estates, a plan's administrator might consider also a county in which the administrator guesses the decedent was domiciled, resided, or owned real property.