Failure to suspend benefit payments

[Young Curmudgeon]

A participant in pay status returns to active service. Their benefit payments are stopped, but no notice is provided. Conversely, there are also people who returned and their payments weren't stopped. The document states that benefits will cease upon returning to active employment.

For the participant who's benefits were stopped without receiving a notice, it seems that this is a victimless error and having reinstated payments upon separation would be correction enough.

For the participant who continued to receive payments, the plan would seem to have no recourse and the employer would need to make up the difference?

I can't find anything that addresses "failure to provide a suspension of benefit notice." Any ideas?

[SoCalActuary]

Squishy problem - fortunately a rare one.

If there were more of these, then predatory lawyers would make a big deal over it.

You should be consistent with your plan document, and you should apply any administrative rules consistently within a single plan/plan sponsor. You adjust for the actual distributions made thru use of actuarial equivalence adjustments to future benefits.

But if you are a TPA, you don't have to apply the identical rules to all clients.

As to your comment on the employer required to "make up the difference", that is inherent in the regular funding obligation.

[david rigby]

I doubt this is as rare as SoCal implies.

This is why I suggest plans permit distribution at NRD, and not suspend upon rehire. Since many rehired retirees are part-time (more than 1000 hours, but less than FT), very often (about 99% of the time in my experience) any additional accrual, offset by payments received, is zero. This gives the employer flexibility in its workforce staffing.

[Andy the Actuary]

Since we're potentially modifying plans, it is worth reiterating that the suspension of benefit rules is one of the most practically difficult provisions to administer and agree with Mr. Rigby that plans that contain such provision sooner or later have an accident. Consequently, avoid. Generally, the actuarial value of benefits paid would exceed the additional benefits that would be accrued.

[Guest Kabert]

YC, this is an operational defect isn't it. Best to raise correction with your ERISA counsel, including what the EPCRS rev. proc says. There are cases out there dealing with failure to provide suspension notices -- a lexis search should identify them.

Also, the plan calls for suspension. Thus, those who continued to get payments shouldn't have and the plan is "out" some money. Isn't that the same as an overpayment to a participant, and thus the plan sponsor has a fiduciary duty to seek recoupment from the overpaid participants? There's IRS and DOL guidance on fiduciary duties and methods of seeking recoupment, and related tax issues, in the overpayment situation.