Beneficiary Designations from a Profit Sharing Plan
I have a client who is the Trustee of her company’s Profit Sharing Plan. Two participants (her parents) died last year. When she dug for Beneficiary Statments, she could find none! What are her options? The rest of the parents estate has been involved in a legal battle between her, and her two sisters. They just settled with each of the sisters getting 1/3rd of the estate, after legal fees are deducted (the attorneys made out like bandits on this one!). One of the other sister’s attorneys is advising that the plan can pay the deceased parent’s portion of the Plan to each of the sister’s directly due to the settlement of the estate, but my question is whether settling the Estate has any bearing on Distributions from a Qualified Plan?
Permalink Submitted by Alan Spross on Thu, 2012-06-21 20:35
The plan provisions would determine who has rights to the proceeds. If there was no designated beneficiary, the plan may specify a default beneficiary. But in the majority of cases with no beneficiary, the estate of the participant would acquire the plan proceeds, and that might require the estate to be re opened. It could be complex bringing into play the will’s of both parents and likely more legal fees. But first the plan provsions should be thoroughly reviewed to determine any default beneficiary at the first death and also the second death.
Permalink Submitted by Glenn Andrade on Thu, 2012-06-21 23:36
Thank you for your response. In reviewing the plan doc, the estate becomes the default beneficiary when the spouse is not alive. I think the daughters are S.O.L. in thinking that they can have the Plan distribute funds directly to their respective Rollover IRA accounts! Unfortunately, since the the TPA fell asleep at the switch, and didn’t make sure beneficiary documentation was in place at his annual reviews (and he ONLY met with the client once per year), the beneficiaries have lost their their ability to stretch distributions using Beneficiary IRA rules! This means that the plan is going to have to pay out almost $600M to the Estate, along with a big fat 1099! I wonder if the TPA’s E&O insurance is up to date?
Permalink Submitted by Alan Spross on Fri, 2012-06-22 00:17
Does the plan also need to be terminated now? If so, that would also likely mean that the last parent’s life expectancy could not be used to avoid a lump sum payout to the estate.
Permalink Submitted by Bruce Steiner on Fri, 2012-06-22 01:55
Why is it necessarily the fault of the actuarial firm that the participants did not sign and submit beneficiary designation forms?
Why didn’t the participants sign and submit beneficiary designation forms?
Why didn’t the employer’s human resources person remind the participants to sign and submit beneficiary designation forms?
It might not help here, but when the first one died, his/her benefits may have been payable to the surviving spouse.
You said what the sister’s lawyer said. What does the plan’s lawyer (presumably also the company’s lawyer) say?
Why can’t the estate at least be able to spread the distributions out over the participant’s life expectancy (as if he/she had not died), or over 5 years if he/she hadn’t reached his/her required beginning date (which effectively allows for 7 taxable years, since the 5 year period goes through the end of the 5th year following the date of death, and the estate can use a fiscal year).