Life and Death Planning for Retirement Benefits

210 / 507

210 Life and Death Planning for Retirement Benefits
C. Effect of the plan’s “state law” provision. Some plan documents, as in Kennedy,
explicitly recognize disclaimers. Such a plan is obviously required to honor a disclaimer
that satisfies the plan’s requirements regarding disclaimers.
Other plans do not specifically mention disclaimers, but do recite that they are governed
by a particular state’s laws to the extent not preempted by ERISA. Under Egelhoff and Boggs,
state law is pre-empted only to the extent it would require the plan administrator to do something
that is not in accordance with the plan documents. With respect to disclaimers, however, the
Supreme Court has stated in Kennedy that there is a federal common law right of waiver and/or
disclaimer and that these rights do not, per se, violate ERISA. Since ERISA does not preempt
disclaimers, and in fact federal law favors the right of disclaimer, according to Kennedy, it would
appear that a plan that is to be administered in accordance with the law of a particular state (except
to the extent preempted) is required by the terms of the plan document to honor a disclaimer that
complies with such state’s law.
4.4.10 Disclaimers and the minimum distribution rules
Who is liable for the penalty for a missed RMD for the year of the
participant’s death if a qualified disclaimer causes the identity of the beneficiary to change after
the end of the year?
Howard Example: Howard died in November, Year 1, after his RBD, leaving his IRA to
his daughter Stephanie. Howard’s RMD for Year 1 was $30,000; he had not yet taken that
distribution at the time of his death. In January, Year 2, Stephanie disclaimed the entire IRA by
means of a qualified disclaimer. As a result of Stephanie’s disclaimer, the contingent beneficiary,
Howard’s son Milton, became “the” beneficiary. Accordingly, it appears that Milton is liable for
the 50 percent penalty for failure to take the Year 1 RMD—even though at no time in Year 1 could
he have legally accessed the account!
4.4.11 How a disclaimer can help after the participant’s death
Disclaimers have proven to be of great value in cleaning up beneficiary designations where
the deceased participant named the “wrong” beneficiary. See, e.g., PLR 9442032 where a
disclaimer was used to allow retirement benefits to flow to the decedent’s “credit shelter trust” that
otherwise would have been unfunded.
A. Changing the Designated Beneficiary. A qualified disclaimer made by September 30 of
the year after the year of the participant’s death (the “Beneficiary Finalization Date”; see
is effective to “remove” the disclaimant as a beneficiary of the disclaimed portion
for purposes of determining who is the participant’s Designated Beneficiary under the
minimum distribution rules. Reg. A-4(a). The fact that the Beneficiary
Finalization Date is not until September 30 of the year after the year of death does not
extend the deadline for making a qualified disclaimer
By means of a qualified disclaimer, an older beneficiary (such as a surviving spouse or
child) can disclaim the benefits and allow them to pass to a younger contingent beneficiary (such
as a child or grandchild) and the younger beneficiary will then be “the Designated Beneficiary”
with respect to the disclaimed portion. RMDs with respect to the disclaimed portion will be
determined based on the identity of the beneficiary who takes as a result of the disclaimer rather
than on the identity of the original beneficiary who disclaimed.