Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

“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. “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)?” “A-2. No, a designated beneficiary is an individual who is designated as a beneficiary under the plan whether or not the designation under the plan was made by the employee.” Reg. § 1.401(a)(9)-4 , A-2. So, there are several key elements to achieving Designated Beneficiary status: 1. Only individuals can be Designated Beneficiaries. An estate does not qualify; ¶ 1.7.04 . A trust is not an individual, but, if various rules are complied with, you can “see through” the trust and treat the individual trust beneficiaries (for some but not all purposes) as if the participant had named them directly as beneficiaries. See ¶ 6.2.01 , ¶ 6.2.03 . It is not known whether a single-member LLC (or other single member entity) that is not treated for federal tax purposes as an entity separate from its owner would be regarded as an “individual” for this purpose. See Reg. § 301.7701-3. 2. If there are multiple beneficiaries, all must be individuals and it must be possible to identify the oldest member of the group. See ¶ 1.7.05 . You also must determine whether the separate accounts rule applies for ADP purposes. ¶ 1.8.01 (B). 3. Finally, the beneficiary must be designated either “by the terms of the plan” or (if the plan allows this; almost all plans do) by the participant. If the participant fills out his beneficiary form naming “my spouse,” or “my children,” or “my friends Larry, Moe, and Curly,” as his beneficiaries, and the specified individual(s) survive the participant and do not disclaim, there is no problem: We have individual beneficiaries designated by the participant, so there is a Designated Beneficiary whose life expectancy can be used as the ADP after the participant’s death. If the participant does not fill out a beneficiary designation form; or if all the beneficiaries he named fail to survive him or disclaim the benefits; we still have a Designated Beneficiary, if the plan fills the gap by specifying individuals who are then living to whom the benefits pass. QRPs, for example, generally provide that benefits will be paid to the participant’s surviving spouse as default beneficiary; see ¶ 3.4.