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Pension Plan Benefits: 7th Cir.

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  • Pension Plan Benefits: 7th Cir.

    Often, in this area of law, we come across decisions that just seem patently unfair. This case is in line with those. Three days into retirement and three days before the start of her pension, Linda Faye Jones died. The committee overseeing the pension plan denied pension benefits to Linda's daughter who was her beneficiary, reasoning that only spouses are entitled to benefits under the plan.
    Section 6.9(e)(i), however, limits who can constitute a designated beneficiary in certain situations. Specifically, “[i]n the case of a Participant who dies prior to the date distributions begin, the Participant’s designated beneficiary will be his or her surviving Spouse, if any, pursuant to the terms of Section 4.4.” Otherwise, “[i]n the case of a Participant who dies after the date distributions begin, the designated beneficiary will be the individual who is designated as the beneficiary under Article VI.” These varying definitions have a purpose, according to Section 6.9(d)(iv): certain tax rules do not apply to the Plan because the beneficiary of a participant who dies before distribution must be the participant’s spouse.
    The court agreed with the committee, finding:
    The Plan, apparently concerned with the tax consequences of failing to comply with § 401(a)(9), employs a blanket rule: only spouses can collect benefits when the participant dies before distribution. Cf. 26 U.S.C. § 401(a)(9)(B)(iv). That decision has an unfortunate consequence here, but in light of Section 6.9, it is not an unreasonable one. Kishunda’s arguments to the contrary misunderstand Section 6.9. She submits that Section 6.9(a) incorporates § 401(a)(9), and that § 401(a)(9) does not prevent designated beneficiaries from receiving benefits when the participant dies before distribution. That is true, in principle—though perhaps not in Kishunda’s case, as § 401(a)(9) requires compliant
    plans to pay designated beneficiaries within five years or “over [their] life,” and she claims a ten-year annuity. 26 U.S.C. §§ 401(a)(9)(B)(ii), (iii). In any event, the incorporation
    of § 401(a)(9) does not aid Kishunda’s claim. That provision dictates when a plan must distribute benefits depending on the recipient; it does not dictate who has the right to receive benefits. See Reklau v. Merchs. Nat’l Corp., 808 F.2d 628, 631 (7th Cir. 1986). Section 6.9, however, does. To meet § 401(a)(9)’s requirements, Section 6.9 dictates who constitutes a designated beneficiary when and implements corresponding distribution mandates. Section 401(a)(9) of the tax code may not limit designated beneficiaries to surviving spouses when participants die before distribution, but Section 6.9 of the Plan does.
    The entire opinion is attached below.
    Attached Files
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