Back payments, plan limited under IRC Section 436

[My 2 cents]

Suppose that a defined benefit plan says that a participant who becomes disabled while an active employee is entitled to monthly payments effective upon being found to be disabled by Social Security. Suppose further that the sponsor/plan administrator did not realize that when a given participant separated from service 12 years ago, it was due to an injury suffered at work which, a few months later, was determined by Social Security to entitle the individual to receipt of Social Security disability benefits.

Suppose that the sponsor/plan administrator has only recently become aware of this, having believed all of this time that the participant had merely terminated with full vesting, and that benefit payments were not going to be due for years.

Assume that, relative to the plan as a whole, the additional value of the unreduced disability benefits is not material (i.e., less than $50,000 out of $100 million), and that past actuarial valuations will not be revised, but that it is now believed that the participant should have been receiving disability payments from the plan for 10+ years.

Now suppose that the plan's AFTAP is currently under 80% and the plan is therefore subject to partial restriction under IRC Section 436.

How does one go about making that participant whole? Assume that the size of the back payments with interest (if payable) would exceed 50% of the current value of the participant's entire benefit.

[Effen]

Suppose the plan has a good ERISA attorney who can parse through the document and find a reason why you don't really owe 12 years of back payments.....

I didn't look, but do the 436 restrictions apply to retro-active payments? For some reason I was thinking they didn't apply. Do they apply to disability payments?

Are there any other provisions in the plan that would eliminate the need for back payments? Is there any language requiring the participant to request a payment, or anything limiting the disability payments to some maximum period of retro payments? Some plans have language that says payments will only commence after the participant makes a formal request.

Just grasping at straws...

[david rigby]

I saw nothing on point in the Gray Book, but (like Effen) did not peruse the regs.

The retroactive date appear to precede the effective date of 436. I would probably not use this as valid reasoning to make the payments. Plus, what Effen said.