Proving a participant has been paid out long ago

[ldr]

Hi to All,

My most thought provoking client called a few days ago asking whether we keep records back into the 1990s and of course, we don't.  He had a phone call from a former employee who received one of those infamous letters from the Social Security Administration saying that he "might" be due a benefit from my client's retirement plan.  My client did happen to have proof of some sort in his office showing that this man was indeed paid out in 1998 and no further benefits are due.

However, my client wants to know what would have happened if he didn't have or couldn't find this information.  We have his plan's activity in our computer software back to 2005, and we have paper copies of everything for the last 7 years, but nothing as far back as the 90s.  

Whenever this has come up before in the various places I have worked, the position has been taken that if the plan does not have a balance for a certain participant today, then he must have been paid out in the past.  So far no participants that I dealt with have ever insisted that I "prove" that he or she was paid out.

How are other firms handling these inquiries?  Have any of you had a participant who wouldn't take "no" for an answer and insisted on proof that he or she had been paid out in the past? 

Thanks as always!

[ESOP Guy]

The simple fact is ERISA puts the burden on the plan to prove the person was paid not the other way around. 

It pays to send in those D codes on 8955-SSAs.  My motto is:  when in doubt D. 

For some clients I have gone back and gotten every old SSA and put anyone we came to be unsure if a D code was filed back in the days when it wasn't required.  

I have had a lot of luck simply writing a letter to someone telling them the plan shows they do not have a benefit any more.  But if they push it the burden is on the plan. 

The plan sponsor ought to keep records that can prove they paid someone forever is the thinking of the lawyers who come around here and I am sure they will tell you that in reply to your question.  

[ldr]

Hi ESOP Guy, thanks for the reply.  Like you, I also report "D" codes and always did, just to prevent this situation.  Last year, I did a total review of every 8955-SSA we ever did for our current clients.  If a participant had ever been reported under the "A" code and no longer had an account balance in the plan, and did not appear to have been reported under a "D" code, I reported them last year as a "D".  That way we could start 2019 with a clean slate and do it right going forward.

We (and the other firms I worked for in the past) have always told clients to keep records for at least 7 years and that 10 years was probably safer.  None of us ever thought about having to prove that someone was paid out 20,25,30 years ago.  We will start telling them to keep proof of benefits being paid out basically forever.

[Lou S.]

2 hours ago, ESOP Guy said:

The simple fact is ERISA puts the burden on the plan to prove the person was paid not the other way around. 

It pays to send in those D codes on 8955-SSAs.  My motto is:  when in doubt D. 

For some clients I have gone back and gotten every old SSA and put anyone we came to be unsure if a D code was filed back in the days when it wasn't required.  

I have had a lot of luck simply writing a letter to someone telling them the plan shows they do not have a benefit any more.  But if they push it the burden is on the plan. 

The plan sponsor ought to keep records that can prove they paid someone forever is the thinking of the lawyers who come around here and I am sure they will tell you that in reply to your question.  

SSA is not always the best at removing folks, even when reported with a D code, especially if the D code was reported long ago. The last 4 participants to call our office with one of those SSA letters where all reported as D on the SSA in the year they were paid out.

[ESOP Guy]

53 minutes ago, Lou S. said:

SSA is not always the best at removing folks, even when reported with a D code, especially if the D code was reported long ago. The last 4 participants to call our office with one of those SSA letters where all reported as D on the SSA in the year they were paid out.

Just curious do you remember if the D's were submitted back when you filed on paper or electronic?

I assume someone had to input the data when paper with all the issues manually inputting large amounts of data and numbers.  

[chc93]

So that's the problem... I guess.  Electronic filing these 8955-SSA's only started in 2009 (?).  But most of these "old" distributions for participants asking now happened years before that... when paper SSA's were filed.  We have kept 1099-R's back to 1990, which has helped.  But we don't have copies of checks and asset statements, and I'm not sure our clients keep anything after a few years.

[Lou S.]

19 hours ago, ESOP Guy said:

Just curious do you remember if the D's were submitted back when you filed on paper or electronic?

I assume someone had to input the data when paper with all the issues manually inputting large amounts of data and numbers.  

I believe we started electronic filing in 1998. So several of the recent early 2000 filings were definitely electronic but before they were on FIRE. But don't know if they were EFAST1 or EFAST2. I can't recall any since the newer separate form filed through FIRE but older stuff does come up for sure. Anything before that was paper. We had one participant from the 90s still question us when we sent her a copy of the 1099-R and her notarize election form. We happened to have all of it scanned.

 

 

[CuseFan]

I think ESOP Guy's initial response was spot on. You can tell a former employee that you have no record of any further benefit due them from the plan, insinuate that they have been paid out, ask them to check there records and hope they go away - and most often they do. But if they don't, 100% burden of proof is on the sponsor - so whenever someone (client or co-worker) asks how long a PLAN SPONSOR should keep records, my answer is always FOREVER. And there is no reason not to convert old paper records into electronic copies and retain. The big problem is that plan sponsors can't jump in their Deloreans and go back to the 70's and 80's and restore the paper records they lost/destroyed prior to the electronic age, together with their impression that their providers were responsible for maintaining all those records. For some, it could be costly case of wishing they'd known then what they know now.

[Kristina]

If the plan can not prove that a former participant was paid his vested benefit, the plan becomes liable to pay the participant again.  

Yes, it is a pain to have to keep the paperwork forever, but it is more of a pain to pay a participant twice.

A form 8955-SSA with the deferred vested reported as a D could be considered as proof the distribution was made and that the SSA missed something.

[Cardscrazy]

So let's list the items of proof:  1) stmts to zero balance; 2) 1099-Rs; 3) 8955-SSA D; 4) contemporaneous excel spreadsheets; 5) copies of distribution elections; 6) TPA summary of distributions.  Maybe only the 8955-SSA one would stop the SSA letter from being issued, but I think I've used all of the other ones listed above at one time or another to prove distributions were made and to give concrete facts in the letter that I wrote to to the former participant.

[Bird]

I'm not so sure the burden of proof is on the plan, in fact I'll say I disagree.  As noted, the SSA is just saying that someone might have a benefit.  If it can't be "proven" with 100% certainty that the participant did not get paid, then...let's start with how much you are going to pay him/her?  Maybe it's just semantics but "no proof" does not equate to "payment of benefits."

I agree that the best case scenario is to have all records, forever, and that's what I tell my clients when asked.  Frankly I don't know if this kind of thing would get litigated (I don't know how else it would be resolved) but I don't think that bringing a notice into court from the SSA saying "you might have benefits" is going to get someone very far.

Does anyone have experience of someone getting benefits (to which they probably were not entitled) solely based on the SSA letter?

[jsample]

I agree with Bird.

As an unrelated note, I would love to read Larry's opinion on this situation.  He has been absent from the boards for awhile.  Does anyone know if he is okay?  Sorry if this is not allowed to be asked and will delete if instructed.  Thank you.

[chc93]

I assume you mean Larry Starr.  In any case, his replies to Form 8955-SSA are towards the middle to end of the following thread...

https://benefitslink.com/boards/index.php?/topic/63600-form-8955-ssa/&tab=comments#comment-289120

 

[Gadgetfreak]

I am having a similar situation now with an existing client and participant who got a letter from the SSA saying they MAY have a benefit of $200k. The client sees they had a balance in 2007 and terminated in 2005. They have a 2007 5500 that shows distributions of over $800k but, obviously, no participant data. The 2007 has no SSA and they do not have any prior or later 5500s that show this person's name. He has no statement at all - just the SSA letter. So that is the big question - is it his responsibility to show that he has a balance or the client's to show there was a distribution?

I think of my own bank account. If I get statements every year showing a balance and then I get one that doesn't, shouldn’t the bank have to prove that they distributed the money to me? Granted, I would check regularly, but this person hasn't done anything in 17 years. But is that a reason not to believe him?

I am also tagging @Larry Starr here because he had posted useful information in the thread referenced above and perhaps wants to comment here.

Thanks in advance.