I am working with a client whose husband set up a defined benefit plan 8 years ago. He died earlier this year. Plan document says she is to be beneficiary of all his assets. However, he mistakenly made a son beneficiary on some past annuity policies used to fund the plan. Insurance companies involved say they must make payment to son regardless of plan document. What to do?

Without further thought about the conflict between the plan terms and the annuities and the adverse implications, you should consider a disclaimer by the son. It would be nice if the son were not a minor at the time of the disclaimer.

Before the son disclaims, you might want to check the terms of the annuity policies to see who then would be the beneficiary per the terms of those policies. That might then have it go to the widow, but maybe somewhere else.

Although the annuity policies may be owned by the DB plan, the insurance company is contractually obligated to pay to whomever is the beneficiary under the terms of the policy--in light of any designations and waivers. The DB plan could pass its ownership of the policies to the widow, but not the death benefit that will go where directed by the annuity policy/designations/waivers.

Q1: Qualified DB plans are required to pay survivor benefits to the spouse unless the spouse waives her rights in writing to plan administrator. If the spouse did not waive, the designation of the son as beneficiary of spousal death benefits is invalid. Did spouse sign waiver of benefits?

Q2 were the annuity policies owned by the plan as an asset prior to the husband's death?

Q3 were the annuity policies issued as a distribution from the plan prior to death or did husband purchase them after he received a distribution from the plan?

Q4 was this plan ever established under IRC 412(i) as a plan funded solely by life insurance or annuity contracts?