Terminated Participant

[thepensionmaven]

We took over a DB plan a few years ago and obtaining the last Valuation Report as well as SB was like pulling teeth (and we are not oral surgeons).

The participant in question has terminated and client looking for me to calculate the amount due, through a current date. Upon his review, he's telling me the prior actuary counted a part-time employee as full time (1,000 hrs) for two years.

Of course employers always complain the participant is getting too much money, but according to these new facts (and he supplied the hours worked for each year) the participant's place on the vesting schedule is lower than reported by prior actuarial firm.  Instead of being 60% vested per the actuarial report, she is actually 20% vested.

My dilema - should I redo the calculations with the correct information (my actuary's opinion) or "what's done is done" as per my ERISA attorney.

Regardless of what the client "wants", if the plan is audited by IRS, they will consider this an operation failure and sanction the client.

 

[Peter Gulia]

As always, the plan’s fiduciary decides what to do (except for asking an actuary to do a report contrary to her profession’s standards).

If the fiduciary (which I imagine is the employer) pays this retiree a benefit greater than the plan provides (and this participant is none of an owner, key employee, or highly-compensated), it seems unlikely that the IRS should pursue tax-disqualifying the plan.

And although it is a fiduciary’s breach to administer a plan contrary to the plan’s governing documents, the Labor department is unlikely to pursue such a breach (unless the facts suggest that other participants are or might be harmed by the overpayment).

An overpaid participant might lack standing to sue the fiduciary.

About using the correct facts to determine the correct benefit, why does anyone fear a problem might result from doing so? Does the fiduciary fear that the retiree might assert reliance on a previously furnished accrued-benefit statement?

The plan’s fiduciary should get its lawyer’s advice, not your lawyer’s advice.

[CuseFan]

Agree that benefits should be calculated using correct data and in compliance with plan provisions. 

This is also a good time to suggest an "internal audit" of plan data to verify completeness and accuracy given the previously described situation and, as the successor actuary you may want to insist or "strongly recommend". If an error in one direction gets corrected (in the sponsor's/owner's favor) but another error in the other direction does not get corrected, you/they got lots of 'splaining to do Lucy.