Plan Administrator's responsibility to contact participants

[Pension RC]

Can someone point me to the source that a plan administrator has a responsibility to contact terminated vested participants upon their reaching normal retirement age?

Thanks!

[Andy the Actuary]

What does plan document specify? Problem arises if TV passes NRA that forfeiture is not permissible, so plan may need to be amended to have retroactive annuity start date provision. Also, you have age 70 1/2 issues. While 50% penalty is imposed on recipient, recipient could go after PA for failure to notify him. By the way, was participant noted on Form 5500 SSA?

[Effen]

I agree with Andy - it is just really good practice.

Keep in mind the PA is supposed to be sending them SARs, SPDs, and benefit statements, so there really is no excuse not to know where they are.

It doesn't really save the plan any money, it just puts off a problem that continues to compound over time.

[My 2 cents]

I remember seeing plans long ago that placed the burden of claiming benefits on the terminated participants, forfeiting anything preceding the date they came looking for the pension benefit. That, of course, is as out of date as bad boy clauses in ERISA plans. The plan administrator has a duty to find and start paying people owed benefits when they get to NRD, even if the plan administrator has to spend money to find them. I agree with Effen - just sitting back and doing nothing only makes things worse.

The plan administrator (acting solely on behalf of the plan participants as a named fiduciary) has a duty to diligently carry out the terms of the plan, and the plan undoubtedly says that if a participant separates from service after meeting the requirements for vesting, the vested benefit shall be paid beginning at NRD. Ergo, if nowhere else, there is a requirement within the plan itself that the plan administrator take whatever steps are necessary to get the payments started on time.

[david rigby]

...there is a requirement within the plan itself that the plan administrator take whatever steps are necessary to get the payments started on time.

From my seat, this is a pretty strong statement. While it may be possible to read something like this into a plan, the majority of plan administrators/sponsors would disagree. Me too. IMHO, if the VT is unable/unwilling to keep the PA advised of a current address, it's not the responsibility (ie, $$) of the PA to do it for him/her.

[Andy the Actuary]

"Sometimes the "correct" course of action isn't the one that is legally defensible at a cost. Instead, it is the action that ensures one needn't defend anything - legally defensible or not." (Mike Preston)

[mbozek]

Just where is the plan admin responsible for hunting down participants and start paying benefits if the participant has not kept the plan admin apprised of his current address? Many participants with vested benefits die before attaining NRA without letting beneficiaries know about their benefits. Its not the plans fault. Others disappear and change their identities or forget that they that have accrued a benefit. Neither SS or the IRS provide a service for plans to locate missing participants.

Participants have a duty to keep the plan admin advised of their current address. In addition when a participant begins SS benefits which will usually be before 65, SS will notify the participant of any vested benefits that the participant was entitled to from a qualified retirement plan. The participant can contact the plan to receive the benefits. An employee can always ask SS to send a statement of deferred vested benefits before SS benefits begin.

As for a plan having to find a participant to make sure that benefits commence by NRD or 70 1/2, IRS reg. 1.411(b)(6) provides that a vested benefit that is payable is not treated as forfeitable merely on account of the inability of the plan to find the participant or beneficiary to whom payment is due, if the plan provides for reinstatement of the benefit if a claim is made by the participant or beneficiary for the forfeited benefit. In other words the plan can suspend any obligation to commence benefits of a missing participant until the participant or beneficiary claims the benefits. This provision should be included in qualified plans and under Reorganization Plan #4 of 1978 also applies to the Vesting rules under ERISA. Under the IRS reg a plan admin could pay a locator service to find a missing participant and suspend payment if the participant cannot be located.

As long as the plan will restore the benefit of a missing participant when the participant claims the benefit it is legally complying with the applicable law and does not need to defend its actions.