Interest Due on Non-RASD, Delayed Payments?

[BenefitsCounsel]

Does anyone have any insight on whether interest is required on delayed (non-RASD) payments?  I've read Stephens v. U.S. Air, which suggests the courts (or at least the D.C. Court of Appeals) will require plans to pay interest on delayed payments.  However, I cannot find anything in the regulations that require it.  Advice from more seasoned professionals is appreciated.

[david rigby]

IMHO, it's prudent to be prepared to include interest on any retroactive payment, but not necessarily required.  Nor is it obvious what interest rate(s) to use.  In a nutshell, to me this is a "facts and circumstances" analysis. 

An important condition in this decision might be whose "fault" leads to the retroactive nature of the payment.  Also, the length of time might be relevant; interest for one month?  For example, suppose Joe Employee comes into work and says, "I'm retiring tomorrow".  Completion of necessary paperwork (including J&S) might be lengthy enough that Joe's first payment is one or two months after his expected retirement date.  One could argue that the delay is not the fault of the employer, so that no interest is payable, but there might be other conditions to evaluate also.  Likely, you can think of other examples that might be useful.

[BenefitsCounsel]

Thank you Rigby.  I agree paying interest is a best practice.  I wanted to be sure there wasn't anything that currently requires interest on delayed benefits.  

[Calavera]

I agree with David that in real life it is subject to "facts and circumstances"

The only official reference that I am aware of is coming from EPCRS https://www.irs.gov/pub/irs-drop/rp-19-19.pdf - See section 6.02

[acm_acm]

On 12/18/2020 at 12:49 PM, david rigby said:

IMHO, it's prudent to be prepared to include interest on any retroactive payment, but not necessarily required.  Nor is it obvious what interest rate(s) to use.  In a nutshell, to me this is a "facts and circumstances" analysis. 

An important condition in this decision might be whose "fault" leads to the retroactive nature of the payment.  Also, the length of time might be relevant; interest for one month?  For example, suppose Joe Employee comes into work and says, "I'm retiring tomorrow".  Completion of necessary paperwork (including J&S) might be lengthy enough that Joe's first payment is one or two months after his expected retirement date.  One could argue that the delay is not the fault of the employer, so that no interest is payable, but there might be other conditions to evaluate also.  Likely, you can think of other examples that might be useful.

I have heard IRS officials (Jim Holland, I believe) at conferences say that using the "fault" thing to decide whether to include interest or not is fallacious, and if payments are late, they should include interest.  Period.

[BenefitsCounsel]

Thanks for the input.  Correction re court: *U.S. Court of Appeals for the D.C. Circuit.

[Todd Flessner]

If not documented in the Plan Document, then make sure your approach is in Administrative Documentation .

The safest approach is always include interest.

I've had many clients give direction like this for non-RASD: 1) Initially, do not include interest unless the delay is the administrator's fault; 2) if the person makes noise, complains or files a claim, then grant the interest. 

Issue with that is that it could be viewed as "inequitable" depending on how it's documented.

But in plans that are administered effectively, cases of disputed interest should rarely come up.