Death during a 401k rollover distribution

C

chrd

New Member
Jurisdiction
Illinois
Participant died in the middle of two 401k rollover distributions and the checks have yet to be deposited into an IRA. Checks dated days just prior to passing. Beneficiaries are designated correctly, however claims to the benefits have yet to be settled. Estate matters would work in the beneficiaries' favor, however should they be entitled to it bypassing probate and awarded directly?

Since they are not deposited, they are still plan assets, and would hopefully be granted a 60-day waiver from the IRS. Uncashed checks are a large problem however this is no direct burden to reclaim the check and reissue to designated beneficiaries. End of the year 1099s are not an issue in this case.

One plan sponsor so far is more willing to work and find an appropriate solution for the beneficiaries. They did inquire if the IRA would still accept the deposit since it's yet to be frozen or closed but will be soon. Next possibilities with sponsor will be discussed tomorrow.

The plan sponsor for the second 401k is adamant that because it was a qualified distribution that it now can only be given to the estate of the participant. Can it be argued and/or appealed that since it's still a plan asset it falls under all the same protections and guidance as it normally would for participants and their beneficiaries under ERISA or similar?

There are a few rulings from the IRS / DOL regarding uncashed checks but pertain to missing persons or taxes related.
 
You need a lawyer, probably put the 401k proceeds into a trust that way you don't have to worry about time limiting out. If you wanted to avoid probate then you shoudl have established a trust before the person past so now your looking at 18 months to 2 years to get the estate settled.

Good luck
 
chrd said:
Participant died in the middle of two 401k rollover distributions and the checks have yet to be deposited into an IRA. Checks dated days just prior to passing.
Click to expand...

Checks?

Why wasn't it a direct rollover, account to account?

Was there a beneficiary named on the 401(k)?
 
It is a direct rollover however both plan sponsors issued the distributions in the form of a check to the receiving bank FBO participants name. So as is they can only be deposited into there or reclaimed by the original sponsors.

Yes, same beneficiaries named on both 401k accounts. The one sponsor in particular says it now is the estates because the distribution occurred. The rollover hasn't been completed and it should still be consider an asset of the plan. It begged the question if that could be appealed or argued.

The other 401k sponsor seems more willing to accomplish that for the beneficiaries after other options are considered first, as in if it could still be deposited into the receiving IRA. That's very well possible and a backup approach if beneficiary checks are out.

What begs the question is there anything that's actually enforcing them to not payout to the beneficiary upon returning the rollover distribution check. If not then a lawyer and appeal might be a good way to go to try and avoid that part from getting sent to the estate account for beneficiary distribution there.
 
This is a great point. That wouldn't be able to be rollover and force lump sum tax once inherited. Concerning but is that any reason the plan sponsor would change they're stance?

To me the sponsor's discretion seems like it should be applied to satisfy ERISA duties and, in this case, doesn't require much work to find the beneficiaries. I'm unfamiliar with the process of how to appeal something and/or if it requires a lawyer.
 
We the beneficiaries have the checks in hand. They're still active I just am not able to deposit them as far as I know while they're made out to "Bank Name FBO Participant Name"

We're also the executors and beneficiaries in the Will, however probate is some time off to get the Letters required to receive them in "Estate of Participant's Name" form. In the meantime I was researching how it might be possible to get them distributed the way originally intended.

There's still a regular bank account active in their name that we are also account holders of. Although I'm not sure if that's leverageable to use. If it was going to go to the estate anyway then I wouldn't mind the lump sum deposit now in there instead of an inherited IRA type of thing.
 
I would suggest askign this at benefitslink.com on their forum...there are a lot of 401k heavy hitters out there, but I suspect that these are going to have to be deposited as written since the deceased requested this prior to death and they were in transit to those IRAs. But if those IRAs have the same beneficiaries, I'm not personally seeing where it has to go through probate... but it might take a bit longer.....

The plan sponsors should follow the wishes of the deceased which was to roll to these IRA(s).
 

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