Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

Regina Example: Regina designates her children A, B, and C as primary beneficiaries of her IRA, with the proviso that, if any child predeceases her, such child’s issue (the contingent beneficiaries as to such child’s share) take the share such child would have taken if living. B predeceases Regina, leaving two children and no other issue. Regina dies. There are no disclaimers or distributions prior to the Beneficiary Finalization Date ( ¶ 1.8.03 ). Regina’s beneficiaries are A, C, and the two children of B. Because A and C survived Regina, any children of A and of C are still merely “contingent” beneficiaries as of Regina’s death and accordingly drop out of the picture; they are not entitled to anything. See ¶ 1.5.12 (D), ¶ 1.6.02 . If the participant does not name a beneficiary; or if all of the beneficiaries named by the participant either fail to survive him or disclaim the benefits; then the benefits pass to the person(s) or entity(ies) named in the plan documents to take in that case, usually called the “ default beneficiary .” See ¶ 4.5.01 . The default beneficiary is “the” beneficiary in this case. Beneficiary designations can raise many issues: The form may contain ambiguous or unclear wording. The form may be missing or for some reason arguably ineffective. There may be a question as to which state’s law governs the interpretation of the beneficiary designation form. Those subjects are beyond the scope of this book. This book assumes that the identity of the beneficiary is clear. In order for benefits to be distributable over the life expectancy of the Designated Beneficiary, there must be a Designated Beneficiary. Not every beneficiary is a Designated Beneficiary. The Code defines Designated Beneficiary as “any individual designated as a beneficiary by the employee.” § 401(a)(9)(E) ; emphasis added. The regulations substantially expand this definition: “A designated beneficiary is an individual who is designated as a beneficiary under the plan. An individual may be designated as a beneficiary under the plan either by the terms of the plan or, if the plan so provides, by an affirmative election by the employee...specifying the beneficiary. A beneficiary designated as such under the plan is an individual who is entitled to a portion of an employee’s benefit, contingent on the employee’s death or another specified event. … A designated beneficiary need not be specified by name in the plan or by the employee to the plan in order to be a designated beneficiary so long as the individual who is to be the beneficiary is identifiable under the plan. The members of a class of beneficiaries capable of expansion or contraction will be treated as being identifiable if it is possible to identify the class member with the shortest life expectancy. The fact that an employee’s interest under the plan passes to a certain individual under a will or otherwise under applicable state law does not make that individual a designated beneficiary unless the individual is designated as a beneficiary under the plan.” Reg. § 1.401(a)(9)-4 , A-1. Definition of Designated Beneficiary

“Q-2. Must an employee...make an affirmative election specifying a beneficiary for a person to be a designated beneficiary under section 40l(a)(9)(E)?”