Beneficiary Determination

Participant "P" dies with no beneficiary designation.  There is no spouse. Participant had two children, son "S" and daughter "D".  S and D have both been located, but they have added a twist.  

S and D both acknowledge that P is the father of both children, but D's birth certificate does not name the father.

My understanding is that D would not be a beneficiary unless she establishes paternity through the courts.  D does not want to go through the trouble for her share of an account that is worth about $10K.

If S makes a claim and the plan pays him the full amount of Ps account, the plan should be in the clear right?   Even if D decides down the road that she does want to establish paternity, the plan would have paid the benefit to the only beneficiary at the time of the claim.  Whats throwing me off a bit is that both S and D acknowledge that P was the father of D, even though its not official.  

Has anyone dealt with this type of situation before?

1 hour ago, RatherBeGolfing said:

S and D both acknowledge that P is the father of both children, but D's birth certificate does not name the father.

My understanding is that D would not be a beneficiary unless she establishes paternity through the courts. 

Have you considered whether an adoption exists?  (PS, sometimes the kids don't know about it.)

We shouldn't be having this conversation unless under the terms of the plan the participant's children are the beneficiaries by default, or the participant simply designated "my children" without naming them.  Is either in fact the case here?    

We decided to punt to the clients ERISA atty and let them handle it.

45 minutes ago, david rigby said:

Have you considered whether an adoption exists?  (PS, sometimes the kids don't know about it.)

It was considered, but as far as they knew there was no adoption.

28 minutes ago, jpod said:

We shouldn't be having this conversation unless under the terms of the plan the participant's children are the beneficiaries by default, or the participant simply designated "my children" without naming them.  Is either in fact the case here?    

No designation, no will, no direction at all.  While I haven't looked at the document myself, I was told the default order in this case is spouse, children per capita, and then estate.  

Just curious do you normally ask for birth certificates in this situation? 

In all the decades I have been doing this I haven't worked for a firm where that would be the a part of the normal procedure if a person died without a beneficiary form and the plan said the children were next in line.  If the employer and everyone else was saying to us this guy said I had two children named S and D and S and D were saying this is all the children we would move on.  

I am inclined to agree with ESOP Guy on this one.  If the PA wants more cover then it can get S to acknowledge in writing that D is also a child of the participant and to hold the PA harmless from paying 1/2 to D.  

@ESOP Guy @jpod

This was a first for me too.  The participants children actually offered up the birth certificate issue.  My guess is that they have had an issue with it somewhere else since they brought it up. My dilemma was that since they offered up the information we can't ignore it. 

The plan says that S and D are the beneficiaries. You have questioned whether D really is a d. This is a question of fact, and the plan administrator has both the authority to determine and the authority to determine the basis on which it will make the determination. ERISA preempts all state laws that might otherwise apply and makes the plan document king/queen. Of course, the determination has to be done in a manner that satisfies the plan administrator's fiduciary duties of diligence and competence.

Practically speaking, under the circumstances, assuming that the plan is not written in a weird way, if D is not a d, 100% will go to S. So if S sings a hold harmless (make sure it waives all rights to sue under ERISA), you're done.

If D is not a d, then S owns 100% of the benefit. If he wants to give half of it to D, he can certainly do so, but the PA still has to report 100% of the taxable distribution to S. So allowing S to "assign" the benefit is not the end of it. 

On 3/20/2019 at 10:24 AM, RatherBeGolfing said:

On 3/20/2019 at 12:17 PM, david rigby said:

Have you considered whether an adoption exists?  (PS, sometimes the kids don't know about it.)

S and D both acknowledge that P is the father of both children, but D's birth certificate does not name the father.

FWIW when I was adopted in Kansas in 1970, my original birth certificate was sealed and a new one issued.

S's attestation that D is indeed a d is to S's detriment. Suggest that S sign a statement to that effect that also acknowledges that by so doing D will be entitled to 50% of the account at S's expense. Who is going to challenge that?

        If the plan provides that the default beneficiaries are the participant’s children per capita, then the surviving children would be entitled to equal shares of the participant’s survivor benefits. Plans, however, rarely provide that the default designee would be the participant’s children per capita, although some do use the more intelligible phrase, the participant’s surviving children.  In such case, the plan administrator has the responsibility and authority to determine the identities of the participant’s surviving children.  Administrators rarely ask for birth certificates or adoption papers to make such determinations, although they may do so if there is uncertainty about whether an individual is such a child.  If the plan is an ERISA plan, the plan documents determine whether there is a de novo review or a deferential review of a beneficiary determination.  

       The premise of this question is that the administrator knows that both S and D are the only surviving children.  In particular, the first paragraph states that “Participant had two children, son "S" and daughter "D".   Thus, under either standard of review, there would seem to be no basis for the administrator to find that either individual was not entitled to half of the survivor benefits. If the plan is not an ERISA plan, then state law would govern. I am not licensed to practice in all fifty states, but I would be surprised if any state law would yield a different result under these circumstances.

Not sure how much scrutiny of parentage is required, but even if Participant is "known" (however much that can be relied on) to have had two children, is the individual representing herself as D indeed the daughter?

Look, not to be a party pooper or anything, but while the participant may have thought of D has his daughter, and because of that S thinks of her as his sister, the lack of the participant's name on the birth certificate does raise an issue.  I don't think he had to ask for the birth certificate, but now that he has it he is presented with a bit of a conundrum.  S signing a hold harmless is the safe way to go here.    

We’re no longer issue-spotting to help RatherBeGolfing, who let us know the situation is out for advice.  Recognizing instead a professional-interest discussion, here’s another issue:

Even if a plan’s administrator receives evidence from which the administrator finds a claimant (or a person identified by a claimant) is the participant’s child, how does someone prove the number of the participant’s children.  Or how does someone prove the non-existence of any more children than already are identified to the administrator?

Using the situation described above as a hypo, how does a plan’s administrator know that the two persons identified are the only children?  If the plan pays a claimant 50% of the account, what responsibility applies about an overpaid 30% if later it is found that there are five children?

If a plan’s administrator engages an heir-search service, is that fee a “reasonable expense[] of administering the plan” within the meaning of ERISA § 404(a)(1)(A)(ii)?  In what circumstances is it prudent to incur the fee?  In what circumstances is it imprudent to incur the fee?

And if the expense is proper and prudently incurred, may a plan’s administrator allocate that expense against the account of the participant who made the expense necessary?

Well, that is always an issue having nothing to do with this thread (but it could apply here as well)!  I think the PA needs to act reasonably and prudently based on the information readily available.  If so I believe the PA is protected from a claim by a purported child that is made after account is distributed. 

           When wills are probated, it is quite common for the beneficiaries to be a subset of the decedent’s issue.  Sometimes, the subset is the surviving children, although anti-lapse rules, such as NY EPTL § 3-3.3, would require such a disposition to explicitly exclude the issue of a deceased child.  Probate courts do not require examinations of birth certificates, adoption records, or instruments acknowledging paternity as a matter of course.  Moreover, in many states paternity may be established without any of those documents, if the father has openly and notoriously acknowledged the child as his own, such as NY EPTL § 4-1.2(a)(2)(C).  This is presumably why the plan administrator knows that S and D are the participant’s two children.  In fact, most courts accept the representations by the probate petitioner of who were the decedent’s children unless someone challenges that representation.  If, as in this case, everyone knows that S and D are the decedent’s children, not only would the probate court not, sua sponte, challenge their rights to inherit, it would likely not permit the estate’s personal representative to charge the estate any expenses for confirming the parentage of one or both children.

           The question may be raised what happens if the estate’s personal representative learns after making payments that one of the claimed children is not a child of the decedent.  If the personal representative behaved prudently in making its determination, it would not have any liability to the actual child for making a distribution to the individual who was not a child.  In contrast, if the plan administrator made a similar mistake, the plan/administrator would be liable to the actual child for the benefit to which the child is entitled to under the plan terms.  ERISA § 502(a)(1)(B).  The prudent behavior defense is only available to a plan/plan administrator who so acts with respect an order that appears to be a QDRO, ERISA 206(d)(I), or with respect to what appears to be a required spousal designation, ERISA § 205(c)(6).  On the other hand, if an administrator imprudently incurs plan expenses in determining whether an individual is the participant’s surviving child or issue, such as in this case where there is no doubt that the individual is a child of the participant, those expenses may be surcharged against the administrator. A similar argument could be made to prevent the administrator from imprudently imposing needless certification charges on plan beneficiaries.

            In fact, the more serious risk for plan administrator is not that an individual claiming to be a child is not the participant’s child, but that the plan administrator is not aware of an unacknowledged child, which is often very hard to discover.  Plan sponsors who believe that this is an undue risk, thus provide that the default designation is the participant’s surviving spouse, if any, and the contingent beneficiary is the participant’s estate. In this way, the plan would be relieved of the obligation to determine the identities and locations of the participant’s other surviving relatives. Few sponsors are concerned about such risks, and thus few plans with such default provisions

9 hours ago, Albert Feuer said:

In contrast, if the plan administrator made a similar mistake, the plan/administrator would be liable to the actual child for the benefit to which the child is entitled to under the plan terms.  ERISA § 502(a)(1)(B).  The prudent behavior defense is only available to a plan/plan administrator who so acts with respect an order that appears to be a QDRO, ERISA 206(d)(I), or with respect to what appears to be a required spousal designation, ERISA § 205(c)(6).

Not sure I agree.  While the plan may be liable, the PA in its fiduciary capacity shouldn't be liable.  The PA may have a fiduciary responsibility to try to get back the excess from the other beneficiary(ies), but if it acted prudently in the first place I don't see a risk of personal liability to the PA. 

31 minutes ago, jpod said:

Not sure I agree.  While the plan may be liable, the PA in its fiduciary capacity shouldn't be liable.  The PA may have a fiduciary responsibility to try to get back the excess from the other beneficiary(ies), but if it acted prudently in the first place I don't see a risk of personal liability to the PA. 

An example of why fiduciary insurance might be a good idea though...

           Rather Be Golfing and J made excellent arguments with respect to fiduciary not having liability in the cases we have been discussing. However, ERISA §§ 206(d)(I), and 205(c)(6) refer to the plan being relieved of liability when the fiduciary behaved in accordance with the ERISA fiduciary responsibility requirements.  This means that if the plan is thereby relieved of the liability the fiduciary is relieved of the liability in those cases. The difficulty in practice in other cases, such as the one under consideration is a practical one.  If the plan is not relieved of the benefit payment obligation if the fiduciary fulfilled its ERISA responsibilities, the plan has no motivation to show that fiduciary fulfilled those responsibilities. Instead, it has every motivation to claim that the fiduciary failed to do so, particularly if the fiduciary who made the payment decision is no longer with the plan.  Thus, I agree with Rather Be Golfing, this is another example of why fiduciaries find it useful to have fiduciary liability insurance.