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jpod

Statute of Limitations

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For the ERISA lawyers out there, and anyone else who wishes to weigh in.  DB Plan terminated and final distribution of assets made in 1999 (yes, 18 years ago).  It was smooth sailing through PBGC.  Now, in July 2017, a former employee receives notice from SSA telling him that he might have a benefit under the DB Plan.  That notice could very well be wrong, due to a Social Security Administration error or the Employer/Plan Administer having failed to list this individual in a Schedule SSA long ago as having received his benefit.  On the other hand, it is theoretically possible that the employee is entitled to a benefit because he fell through the cracks during the termination process and never received his benefits in cash and was never included on the annuity purchase list.

What is the limitations period for this employee to bring a claim?  Is it the most comparable state law limitations period (usually for breach of contract), and if so when does the clock start to run:  at the Plan termination date or now?  Or, is there a possible ERISA breach of fiduciary duty claim with a 3-year or 6-year SOL starting now?  Is the termination of the Plan in accordance with all PBGC rules at all relevant?

Please resist the temptation to suggest that we go back into the records and try to find out what happened to this individual's benefits.  Assume he never received the benefit he was entitled to receive and has a slam dunk claim but for the SOL issue.    

  

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This is a PBGC issue.  Direct all inquiries there.

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MP:  Why is it a PBGC issue?  I am looking at this from the plan sponsor's perspective, i.e., evaluating its exposure. 

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The nature of a PBGC termination is that the liabilities of a plan are assumed by them.  Otherwise, they would have no incentive to audit.

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I didn't know that, but assuming it is true PBGC can come back to the employer with a subrogation-like claim, can't it?

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Typically, when TPAs prepare the SSA forms for Terminated Participants with Deferred Amounts, they fail to go back and send that same participant when that balance (or accrued benefit) as been distributed.  So, eons later, the SSA would report to that former participant (who terminated and took a distribution from that plan a long time ago) that there was once a balance reported from that plan as belonging to them.

This is nothing more than a broken process.  Many former participants get these from plans that are actually still in existence. Many times (especially in the DC area) the response is simple; you once had a balance left in the plan but it has since been distributed.  This nonetheless puts the former participant in the position to demand proof.  When I used to get these types of requests on the recordkeeping side, I would turn and demand that they show proof of an entitlement from the plan (and we can debate 'until the cows come home' as to whether that SSA notice would be proof of anything other than a balance having once existed in the plan.

Good Luck!

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I don't know for sure but I think the SSA letter would almost guarantee that the participant, as a plaintiff in State of Federal Court, can survive a motion to dismiss by the employer.

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We've actually removed participants on the SSA form who still got the letter from SSA that they might have benefits.

I don't know what the statute of limitations is but for benefit claims I thought the limitation was effectively "forever".

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All of this is interesting but off point.  I am assuming for purposes of my inquiry that the participant is entitled to a benefit, subject to being outside the SOL.

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http://www.workplaceclassaction.com/2011/02/limitations-period-for-erisa-pension-benefits-claim-accrues-on-date-when-plaintiff-should-have-recei/

^Not sure if this is quite on point but it seems to agree with other stuff I've found that absent a provision in the plan the SOL tends to follow state contract law. However when the the SOL starts seems to be somewhat variable. In the case cited they determined the limit started when the participant hit NRA of 65 and didn't receive benefit payment not when the claim was made which turned out to be 7 years later and 1 year after the applicable time limit in Massechuetts

In your case if you can show reasonably that the participant was notified of the plan termination 18 years ago it might be argued that is when the counting time should start, on the other hand, if it can't be shown that participant was aware of the termination it might be argued that the counting of the SOL wouldn't begin until participant reached NRA which presumably has happened with the claim for SSA benefits and SSA letter to participant.

But I am not a lawyer and just offering my best guess as speculation so take it for what that is worth.

 

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3 hours ago, jpod said:

All of this is interesting but off point.  I am assuming for purposes of my inquiry that the participant is entitled to a benefit, subject to being outside the SOL.

And I remain open to the possibility that he's not entitled to a benefit.  You can sue someone for looking at you hard.  You may not win, but you can sue.  So, surviving a motion in court would still present the burden of proof on the former participant, as plaintiff, that they're still entitled to those funds.  If I were the employer, I'd wait for that case; then show up with the distribution record showing that they were paid out. I would then explain the process that triggered the letter from the SSA and how it bears not relationship to the current entitlement. When you look at how the process works, all you can conclude from the letter is that the participant once had an accrued benefit in the plan, terminated, and failed to take a distribution of that accrued benefit after a one year break in service.   In the end, the participant would be saddled with court costs.

Money just doesn't disappear in a qualified plan. 

Good Luck!

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13 hours ago, ETA Consulting LLC said:

...  If I were the employer, I'd wait for that case; then show up with the distribution record showing that they were paid out. ...

The problem with that is many of the claims resulting from the SSA notice come long after the records have been purged or are otherwise unavailable.  Say the person was paid out in 1988, the employer merged into Company A in 1994, Company A merged into Company B in 2002, Company B was sold in 2007...  Who can produce a copy of either the paperwork or a plan fund statement from 30 years and 3 or 4 companies ago?

Besides which, if the employer can locate the distribution record, everyone's life is simplified by the employer providing a copy to the claimant as soon as possible (who will never get to the point of even threatening litigation, since even non-lawyer claimants know better than to bother with lawsuits based on not being able to remember a transaction for which the other party can produce evidence).

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Weellll - having previously worked for a large corporation, I can say that they sometimes settle completely bogus claims, where there is realistically no chance of losing, (but never say never) just to clear it up. Sadly, this often saves them money, so they pay $3,000 to make it go away. The plaintiff contacts an attorney. The attorney then sends a letter to defendant, threatening to sue, but willing to discuss an "amicable" settlement, and sometimes the defendant pays a small amount. It is a game played by the attorneys with, no doubt, zillions of permutations, but I've seen it happen. To those of us who were non-lawyers, it used to drive us crazy sometimes. I'm sure some of the attorneys here can relate horror stories - anyway, I'm of the opinion that IF the proof of distribution can be produced - do it and try to head off trouble. So I'm agreeing with My 2 Cents. As galling as it may be, sometimes refusing to pick a fight is the best option.

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We have often found that a letter explaining the SSA reporting issues, that "may be entitled" does not mean "is entitled" and that all plan liabilities were satisfied upon plan termination, which was audited by the PBGC, and their benefit was either previously distributed prior to or in conjunction with the plan termination (SOL standing for something else here). If you know the identity of the insurer you can refer them there in case an annuity was purchased. Also suggest they review their own records - bank statements, IRA statements, etc. for their prior receipt of the distribution This usually satisfies the participant, especially if the benefit is relatively small. it certainly helps if records are maintained and the courts have definitely sided with claimants if the employer did not retain sufficient records - but the goal is not to get to that point.

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32 minutes ago, CuseFan said:

... especially if the benefit is relatively small. ...

Does the SSA letter say how much or just that they may be entitled to something?

And even for ongoing plans, challenges asserting that the benefit must be bigger than what they are being given election materials for are not unheard of.  "I worked there for over 15 years!  It must be bigger than that!"

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14 hours ago, My 2 cents said:

Besides which, if the employer can locate the distribution record, everyone's life is simplified by the employer providing a copy to the claimant as soon as possible (who will never get to the point of even threatening litigation, since even non-lawyer claimants know better than to bother with lawsuits based on not being able to remember a transaction for which the other party can produce evidence).

True. I was being a little facetious (only a little) :-)  It's typically a lot of work going to pull the distribution record. My approach would be to not expend this level of energy (given the fact that the SSA letter does not represent a current entitlement) unless it actually goes to court. At that point, you present every defense you have.  Just imagine how convenient it would be for me to walk into a bank and show them a statement with a $100K balance from 25 years ago and say "Prove that you distributed these funds to me." 

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7 hours ago, ETA Consulting LLC said:

Just imagine how convenient it would be for me to walk into a bank and show them a statement with a $100K balance from 25 years ago and say "Prove that you distributed these funds to me." 

There is a difference between walking into a bank as you suggest, and going to an employer requesting information about a benefit: *E*R*I*S*A*

There is a "requirement" to retain records for as long as necessary to calculate and pay all benefits due - regardless of how long that may be, or how many corporate transactions (M&A, spin-offs, etc.) may have taken place...I would suggest that plan sponsors also maintain all records showing that all benefits that had been paid, were actually paid.

"Purge" is a a word and action that should be "purged" from ERISA plan operations.

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1 hour ago, MoJo said:

There is a difference between walking into a bank as you suggest, and going to an employer requesting information about a benefit: *E*R*I*S*A*

There is a "requirement" to retain records for as long as necessary to calculate and pay all benefits due - regardless of how long that may be, or how many corporate transactions (M&A, spin-offs, etc.) may have taken place...I would suggest that plan sponsors also maintain all records showing that all benefits that had been paid, were actually paid.

"Purge" is a a word and action that should be "purged" from ERISA plan operations.

Okay, then imagine how convenient it would be for me to mail a plan administrator a statement from 25 years ago with a $100K balance and say "Prove that you distributed these funds to me."   Let's also imagine that 25 people do it to a single Plan Administrator. 

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13 minutes ago, ETA Consulting LLC said:

Okay, then imagine how convenient it would be for me to mail a plan administrator a statement from 25 years ago with a $100K balance and say "Prove that you distributed these funds to me."   Let's also imagine that 25 people do it to a single Plan Administrator. 

I guess my question is why would you NOT keep records of benefit payments?

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We know that the SSA notices are often wrong, either because of an internal mistake at the SSA or because the PA never reported the distribution of benefits to the participant on the Schedule SSA (or whatever it used to be called before it was moved to a separate filing).  Nevertheless, unless the employer has some evidence to contradict the SSA notice it should be enough to get by a motion to dismiss.    

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25 minutes ago, ETA Consulting LLC said:

Okay, then imagine how convenient it would be for me to mail a plan administrator a statement from 25 years ago with a $100K balance and say "Prove that you distributed these funds to me."   Let's also imagine that 25 people do it to a single Plan Administrator. 

Then I would expect the PA to actually have records to prove it.  Scanners and hard drives are cheap....  The company I currently work for (a service provider) seems to keep records forever.  We routinely look up information for beneficiaries on old voluntary TDA accounts from the 40's and the 50's.  Those are in storage in the basement of our tower and fairly easily retrievable within a few hours of requesting it.  Anything new is online in a document management system.

And by the way, I have "mailed" old statements to a PA when I used to do estate work as a "real" attorney.  Heirs would come to me with shoe boxes of stuff, and we had to determine with certainty what the estate assets were.  Never had anyone say "are you nuts?  That was decades ago."  Most often, the reply was benefits were "paid" by whatever and whenever.  I never got a "we don't know."

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 I'm typically able to formulate everything into an understanding of process; the actual cause and effect relationships being pieced together to determine the series of events that led to the current case.

We can sit here and create an unlimited number of hypothetical situations (i.e. a plan has been transferred to 7 different recordkeeping platforms during the past 25 or (even 55) years. Whatever the process may be, I think it's pretty consistent that any current entitlement you have from a plan would be reflected on a current statement.  The fact that you had a balance eons ago says nothing about your current entitlement.  So, issues will arise.  When they do, each PA would have to determine how much time and energy they are going to expend in resolving them; obviously different Plan Administrators will employ different methods and expend different levels of energy.  For me, I find a solid understanding of process would enable me to piece together the series of event that create the situation in order to provide the most effective and efficient resolution.  To each his own.

Good Luck!

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It is my understanding that even benefits or account balances that are explicitly forfeited pursuant to plan provisions because the participant could not be found must be restored when the participant is found.  It is also my understanding that in the event that a defined plan under which such forfeitures have occurred must make provision for those benefits (either through the purchase of annuities or turning the participants over to the PBGC through the missing participants program) when the plan terminates.  Is this not so?

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Even in that scenario, you'd keep an outstanding log of all balances that were forfeited due to a lost participant.  You wouldn't want to go back and research every record for every year in order to ascertain whether a participant's balance was previously forfeited (which is generally done when a payment is required to be made and the participant is not available); that would amount to reinventing the wheel in many instances.  But, should you ever have to forfeit a balance for a missing participant, you'd maintain a forfeited balance log in order to refer to it and immediately ascertain if there is a benefit entitlement.  Then, again, it does remain up to each Plan Administrator to determine how they can effectively and efficiently operate their plan. 

Good Luck!

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22 hours ago, ETA Consulting LLC said:

Even in that scenario, you'd keep an outstanding log of all balances that were forfeited due to a lost participant.  You wouldn't want to go back and research every record for every year in order to ascertain whether a participant's balance was previously forfeited (which is generally done when a payment is required to be made and the participant is not available); that would amount to reinventing the wheel in many instances.  But, should you ever have to forfeit a balance for a missing participant, you'd maintain a forfeited balance log in order to refer to it and immediately ascertain if there is a benefit entitlement.  Then, again, it does remain up to each Plan Administrator to determine how they can effectively and efficiently operate their plan. 

Good Luck!

That is a terrific description of what SHOULD happen. But I've not seen many plan sponsors who do it. "That's what we pay our TPA/recordkeeper/advisor to do," is the most common response.

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