Inaccurate notice of benefit from SSA

[Guest johnpetrancosta]

Facts:

1. 1985 - Based upon #4 below, former participant terminated with vested balance prior to Sponsor/Plan becoming our client.

2. 1985 - Based upon #4 below, former participant's vested balance was properly reported on Schedule SSA.

3. 1988 - Sponsor/Plan became our client.

4. 2012 - Former participant receives notice from Social Security Administration that they had a balance of $850 in xyz Plan in 1985.

5. 2012 - We research all available records, some of which date back to 1996, and have no record of the former participant or balance. No records have been kept prior to 1996.

6. 2012 - We notify former participant that balance was previously distributed (an assumption on our part), and they no longer have a benefit in the Plan.

7. 2012 - Former participant rejects our claim and insists we provide forms for them to obtain their benefit.

Assumptions:

1. Former participant's balance was properly distributed between 1986 and 1995.

2. The Social Security Administation was never notified the benefit was distributed.

Known Issues and Questions:

1. Who has the burden of proof to show the benefits either remains or was properly distributed?

2. Since records are not required to be kept for 20 years, how do we prove the benefit was properly paid should the burden fall on us?

3. Related to 1&2, was there a mechanism to remove someone reported on Schedule SSA when they subsequently receive their distribution?

4. If the answer to 3 above is yes and it was never done (a reasonable assumption considering they received the notice), does it affect who has the burden of proof?

5. If the ultimate conclusion is that we have to pay, do we have to include gains/losses from 1985?

6. If the answer to 5 is yes, how do we calculate that if the investment records no longer exist?

7. What other issues and questions am I failing to consider?

[mbozek]

Facts:

1. 1985 - Based upon #4 below, former participant terminated with vested balance prior to Sponsor/Plan becoming our client.

2. 1985 - Based upon #4 below, former participant's vested balance was properly reported on Schedule SSA.

3. 1988 - Sponsor/Plan became our client.

4. 2012 - Former participant receives notice from Social Security Administration that they had a balance of $850 in xyz Plan in 1985.

5. 2012 - We research all available records, some of which date back to 1996, and have no record of the former participant or balance. No records have been kept prior to 1996.

6. 2012 - We notify former participant that balance was previously distributed (an assumption on our part), and they no longer have a benefit in the Plan.

7. 2012 - Former participant rejects our claim and insists we provide forms for them to obtain their benefit.

Assumptions:

1. Former participant's balance was properly distributed between 1986 and 1995.

2. The Social Security Administation was never notified the benefit was distributed.

Known Issues and Questions:

1. Who has the burden of proof to show the benefits either remains or was properly distributed?

2. Since records are not required to be kept for 20 years, how do we prove the benefit was properly paid should the burden fall on us?

3. Related to 1&2, was there a mechanism to remove someone reported on Schedule SSA when they subsequently receive their distribution?

4. If the answer to 3 above is yes and it was never done (a reasonable assumption considering they received the notice), does it affect who has the burden of proof?

5. If the ultimate conclusion is that we have to pay, do we have to include gains/losses from 1985?

6. If the answer to 5 is yes, how do we calculate that if the investment records no longer exist?

7. What other issues and questions am I failing to consider?

Answers:

2. This is tough situation which ilustrates why plan administartors need to keep records of payment forever. One question is whether the plan sponsor can recover the w-2p or 1099R form from the IRS by using the participant's ss #. IRS does have a service which allows taxpayers to recover prior tax returns but I dont kow if information returnas are included.

1. Plan has the obligation of keeping records and paying benefits to participants. There is no statute of limitation for a participant to request benefits so the plan must always be able to demonstrate payment has been made. Saying plan has no record of accrued benefits for participant is not proof that benefits were paid to participant because records of vested accrued benefits could have been lost or misplaced. If participant files a claim for payment how does plan administrator deny claim if there is no record that payment has been made?

3. According to the IRS, under the old 5500-SSA plans could update the status of a participant's benefit by including information that a deferred benefit had beenn paid in a later year which would remove the benefit from the SSA register.

4. See answer to #1.

5 & 6. I dont know. If there are no records of an accrued benefit how can plan determine what participant's account was invested in. See 7

7. Most expedent solution with least cost and risk is for plan to pay $850 to participant as full settlement of his accrued benefit in return for waiver and release of all other claims. Fiduciary justification for paying latent claim for which there are no records of a deferred benefit is business necessity to eliminate litigation risk and cost of determining whether payment is owed which could be greater than amount of payment and prevent further liability to plan. Need to consult with counsel as to how this can be done.

[Guest johnpetrancosta]

Thank you.

I suspected as much.

[masteff]

Be sure to follow, and require the former participant to follow, your plan's claims and appeal procedure.

I will note that it was not required to report subsequent zeros on form SSA until 10 or so years ago. My experience is that plans did not report such zeros. Therefore a fair number of people reported prior to that date have potentially erroneous info at SSA.

You might also look to an older version of your plan document and provide the person with the section on deminimis cashouts. $850, even with some growth, would likely have been cashed out.

[pmacduff]

We had a similar situation about 9 years ago. The balance reported by SSA was about $600 if I recall. (and by the way - the letter from the SSA to the participant says " you MAY have a benefit in XYZ Plan"). (emphasis mine). It does not state that there is definately a balance due.

That being said in our situation we did try to find records but to no avail. We asked the participant to check his own personal tax records & we never heard from him again. (Lucky - I know).

Can you check with the investment provider or with the IRS for the 1099-R as mbozek suggests?

[mbozek]

Be sure to follow, and require the former participant to follow, your plan's claims and appeal procedure.

I will note that it was not required to report subsequent zeros on form SSA until 10 or so years ago. My experience is that plans did not report such zeros. Therefore a fair number of people reported prior to that date have potentially erroneous info at SSA.

You might also look to an older version of your plan document and provide the person with the section on deminimis cashouts. $850, even with some growth, would likely have been cashed out.

The IRS has been extremely vauge as to whether there was a requirement to change the info on the 5500-SSA prior to 2009 if the participant cashed out a deferred vested benefit that has been reported on the SSA in year of termination. I thought the IRS said that it was recommended that the cashout be reported, but not required.

[masteff]

The IRS has been extremely vauge as to whether there was a requirement to change the info on the 5500-SSA prior to 2009 if the participant cashed out a deferred vested benefit that has been reported on the SSA in year of termination. I thought the IRS said that it was recommended that the cashout be reported, but not required.

This would have been in the early 2000's. The IRS may have been less insistent but I recall guidance from either the SSA or the PWBA that, if it wasn't mandatory, it was certainly "encouraged". At the same time, they also made a change in the timing of when we'd have to report someone on SSA, which they said was to reduce the number of people getting no-longer-valid notices.

And I'll stand by my two posts in this old thread on the topic: http://benefitslink.com/boards/index.php?showtopic=38472

[Bird]

(and by the way - the letter from the SSA to the participant says " you MAY have a benefit in XYZ Plan")

Exactly. The evidence here (there is no account balance) indicates that the benefit was paid already. I'd certainly look or ask the client to look for proof of that, but the burden is on the (ex) participant, and I wouldn't pay anything without additional evidence that the benefit still exists. The SSA letter is simply evidence that a benefit used to exist.

[mbozek]

(and by the way - the letter from the SSA to the participant says " you MAY have a benefit in XYZ Plan")

Exactly. The evidence here (there is no account balance) indicates that the benefit was paid already. I'd certainly look or ask the client to look for proof of that, but the burden is on the (ex) participant, and I wouldn't pay anything without additional evidence that the benefit still exists. The SSA letter is simply evidence that a benefit used to exist.

How does a participiant prove a negative (benefits were not paid) when the plan has all the records (including copies of the 1099R) if payment was made? Plans that paid out deferred benefits at a later date could have avoided inquiries for benefits if they submitted payment information on the 5500-SSA.

Under your proposal, plans could avoid paying participants simply by periodically destroying all records of deferred vested benefits that have not been paid and saying there is no record of a deferred benefit when the participant requests payment under SS notice. It doesnt take much space to store copies of of 1099Rs or images of checks.

[John Feldt ERPA CPC QPA]

Also, the assets of the plan are to be used only for the exclusive benefits of the participants and beneficiaries of the plan and to pay reasonable plan expenses. If this person is not truly entitled to a benefit, wouldn't a payment from the plan violation of this rule? Or is a "payoff" to a bothersome participant considered a reasonable plan expense?

IMO, even if the employer just wants the problem to go away, they should be careful to not to issue them a check from the plan without finding sufficient satisfication to support that this person is truly a participant with an unpaid benefit.

If they find no evidence to suggest this person is entitled to a plan payment, then if they think the participant would go if any type of payment was made, maybe they could make a payment from their own pocket, not from the plan. But that would not necessarily end anything, since the participant could still argue their claim since no payment was made from the plan.

FWIW.

[Guest johnpetrancosta]

(and by the way - the letter from the SSA to the participant says " you MAY have a benefit in XYZ Plan")

Exactly. The evidence here (there is no account balance) indicates that the benefit was paid already. I'd certainly look or ask the client to look for proof of that, but the burden is on the (ex) participant, and I wouldn't pay anything without additional evidence that the benefit still exists. The SSA letter is simply evidence that a benefit used to exist.

How does a participiant prove a negative (benefits were not paid) when the plan has all the records (including copies of the 1099R) if payment was made? Plans that paid out deferred benefits at a later date could have avoided inquiries for benefits if they submitted payment information on the 5500-SSA.

Under your proposal, plans could avoid paying participants simply by periodically destroying all records of deferred vested benefits that have not been paid and saying there is no record of a deferred benefit when the participant requests payment under SS notice. It doesnt take much space to store copies of of 1099Rs or images of checks.

On the flip side, what prevents any former participant from going back and claiming a benefit from a previous employer. Records are not required to be kept indefinitely.

What prevents me from going back to an employer I had 20 years ago and saying "I never requested a distribution of my vested balance. Please send me the forms so I may request a distribution".

Your very first post indicated that no records of a benefit is not evidence that one does not exist. Please allow me to offer the followng to see what you think.

Proper Plan accounting requires a reconcilation of participant balances to total plan assets and participant statements to be sent to the Plan participants. The Plan in question was an old style pooled account plan until it was converted to participant directed accounts in 2002. From 1997 to 2002 we have participant equity spreadsheets and participant statements which agree to total plan assets. In 2002 we have the conversion spreadsheet allocating the pooled assets to the individual participant accounts. This former participant is not listed anywhere between 1997 and 2012, all the assets are properly accounted for and allocated and all the participant received participant statements with their balance.

Routine control procedures require vested balances for terminated participants to maintained, unvested amounts to be forfeited and the forfeitures to be disposed of according to the Plan Documents. Additionally, routine procedures dating back prior to 1997 allowed for the force-out of balances below $1,000.

Due to the fact that former participant cannot produce a participant statement and record of benefit, accounting records dating back to 1997 indicate all balances were properly reconciled and allocated, the balance is below the mandatory force-out and, in the 1980's, most plans did not remove participants from the 5500-SSA once the balances were subsequently distributed, isn't there reasonable evidence to disprove the existence of a benefit.

[Lou S.]

It doesnt take much space to store copies of of 1099Rs or images of checks.

Yes but what do you do when SSA sends a notice to a particiant who was reported in 1991.

You take over as TPA in 1998 and there is no record of this participant on any takeover reports and you didn't get 7 years worth of 5500s and SSAs to see they had been reported but not been removed.

The client terminates the plan in 2002, disolves the partnership and pays everyone out.

Former TPA pre-1998 no longer exists.

SSA notifies they particicant that they have deferred vested benefit in 2012.

Both the ex-participant and ex-client are attorneys.

Who is responsible for keeping the records 10 years after plan termination?

[masteff]

Due to the fact that former participant cannot produce a participant statement and record of benefit, accounting records dating back to 1997 indicate all balances were properly reconciled and allocated, the balance is below the mandatory force-out and, in the 1980's, most plans did not remove participants from the 5500-SSA once the balances were subsequently distributed, isn't there reasonable evidence to disprove the existence of a benefit.

I agree... so follow your plan's ERISA claims procedure. Look in your SPD. If he refuses to accept your response so far, then from this point forward, only deal w/ the ex-participant as per that procedure. This may mean making him file a formal claim. The ERISA claims procedure exists to protect both the participant and the plan. If you stick to the procedure and he doesn't then he loses traction if he tries to involve the DOL or take you to court.

[mbozek]

It doesnt take much space to store copies of of 1099Rs or images of checks.

Yes but what do you do when SSA sends a notice to a particiant who was reported in 1991.

You take over as TPA in 1998 and there is no record of this participant on any takeover reports and you didn't get 7 years worth of 5500s and SSAs to see they had been reported but not been removed.

The client terminates the plan in 2002, disolves the partnership and pays everyone out.

Former TPA pre-1998 no longer exists.

SSA notifies they particicant that they have deferred vested benefit in 2012.

Both the ex-participant and ex-client are attorneys.

Who is responsible for keeping the records 10 years after plan termination?

At the time of termination the plan is required to pay out all accrued benefits. In many cases some benefits cannot be paid such as missing participants for whom there is no address or for whom the plan does not have a SS #. In this case the plan pays out all benefits to participants that the plan can locate and liquidates. ( DB plans transfer the benefits of missing participants to the PBGC) I dont know what liability there would be if a participant trys to claim benefits in 2012 since the s/l for a breach of fiduciary duty would go only back 6 years and no plan existed in 2006. I have never heard of a plan participant filing a claim for benefits against the plan admin of a plan that has terminated and paid out all benefits.

[Lou S.]

It doesnt take much space to store copies of of 1099Rs or images of checks.

Yes but what do you do when SSA sends a notice to a particiant who was reported in 1991.

You take over as TPA in 1998 and there is no record of this participant on any takeover reports and you didn't get 7 years worth of 5500s and SSAs to see they had been reported but not been removed.

The client terminates the plan in 2002, disolves the partnership and pays everyone out.

Former TPA pre-1998 no longer exists.

SSA notifies they particicant that they have deferred vested benefit in 2012.

Both the ex-participant and ex-client are attorneys.

Who is responsible for keeping the records 10 years after plan termination?

At the time of termination the plan is required to pay out all accrued benefits. In many cases some benefits cannot be paid such as missing participants for whom there is no address or for whom the plan does not have a SS #. In this case the plan pays out all benefits to participants that the plan can locate and liquidates. ( DB plans transfer the benefits of missing participants to the PBGC) I dont know what liability there would be if a participant trys to claim benefits in 2012 since the s/l for a breach of fiduciary duty would go only back 6 years and no plan existed in 2006. I have never heard of a plan participant filing a claim for benefits against the plan admin of a plan that has terminated and paid out all benefits.

All benefits were paid out, there were no missing participants. It was a participant directed DC Plan. At the time of plan termination there was no record of the particiant having any account in the plan, very likely because he/she had been paid out in the early 90s under the prior TPA.

Not sure where this will go or if the participant will try to persue legal action over this, but if they do I'll be sure and let you know.

Usually when we get these letters we either have the records to show payout or just tell them we have no record of them and they must have been paid out and that usually ends it.

In this case with the ex-participant doesn't seem to want to let it go even though there is no longer any plan or sponsor for her to make a claim against.

[mbozek]

This may be the only cliam she has since the s/l for employment discrimination expired long ago.

Question was the participant a partner?

I would be interested in what happens.