SSA Notice- Benefit Due

former participant received a notice from Social Security she had a benefit under her former employer's plan.

the participant terminated back in 1989. The plan has changed TPAs and recordkeepers a couple of times since the 1989 termination date and finding the detail as to what happened to her account (paid/rolled to default IRA) has been challenging.

What is the employer's responsibility regarding this matter. If they can not prove the benefit was distributed is the employer responsible to pay the former participant?

Does the employer have to fund the amount on the notice to the plan then have the plan issue payment and tax reporting to the participant?

thanks

55 minutes ago, 52626 said:

former participant received a notice from Social Security she had a benefit under her former employer's plan.

I believe the notice said she might have a benefit.

Odds are probably pretty good that she got paid but it wasn't un-reported.  I'd probably push back and tell her to prove it.  I don't think there is standard operating procedure for this stuff.

While we don’t know your situation’s particular facts, the plan’s administrator might consider asking for its lawyer’s advice about using 29 C.F.R. § 2560.503-1 and the plan’s claims procedure.  https://www.ecfr.gov/cgi-bin/text-idx?SID=a4695688324f5ce300c2ed273609e32f&mc=true&node=se29.9.2560_1503_61&rgn=div8

If using it, one might follow the many points a carefully designed procedure ought to provide, including:

Furnish, and explain, the claims procedure.

Invite the claimant to submit evidence showing that a benefit is owing.

Search the plan fiduciaries’ records for evidence about the probability (good or bad) that a benefit was paid.

That might include evidence showing whether the administrator followed its procedures to direct payment of involuntary distributions, including on-severance cash-outs and minimum distributions.

On a denial:

Explain carefully the reasoning.

Explain that the claimant must exhaust the plan’s claims procedure.

Explain the claimant’s opportunities for further review and appeal under the claims procedure.

Explain all time limits in the claims procedure.

Explain (again, because it should be in the summary plan description), the plan-imposed “statute of limitations” on claims.

There are several advantages to following the claims procedure.  They include:

If the denied claimant complains to the Employee Benefits Security Administration and EBSA opens an inquiry, the plan administrator’s records should show it acted at least in good faith.  (In my experience, EBSA closes an inquiry—even if EBSA dislikes the administrator’s decision—if the record shows that the claimant was afforded her procedural rights.)

If there is a lawsuit, the defendants might use the plan-administration record to show that the plaintiff’s assertion is so implausible that the judge dismisses the complaint for failure to state a claim.

A court should limit its review to the plan administrator’s claims file.

A court defers to the plan administrator’s decision unless it could not have resulted from reasoning.

While Peter's answer is the right answer.  It is my understanding the plan has a burden to keep the records to show this person was paid.  

Bird's answer is the most practical answer.  I find if someone talks the person and points out the notice does say "may" be owed a benefit and the plan's records show they have been paid the person goes away 99.99% of the time. 

It is only if they don't go away after that you need to really start to go down the road Peter layouts out as a practical matter. 

Just to be clear have the client look for old records that might show if the person was paid or not.  To make sure their benefit wasn't forfeited because they were lost of something like that.  If the plan owes them the benefit the plan ought to pay the benefit.

This by the way brings me back to a pet peeve of mine.  Do those stupid "D" codes on the 8955-SSA.  That would solve this.  As I tell people all the time:  When in doubt D.   I have yet to see a D code to come back and bite me.  I am asked all the time, "but what happens if we put a D code in and there wasn't an A code?".  I have never seen that cause an issue.  So when in doubt D. To the point if the client thinks they have old SSAs it might be worth to do a clean up filing this year to make sure anyone paid out and might have never had a D code filed gets one now. 

ESOP Guy gives us good guidance:

A plan administrator’s careful reporting to the Social Security Administration lowers how many “MAY be entitled” letters go out.

Communication with an inquirer gets rid of most inquiries from those letters.

Admittedly, my experiences mostly are about situations in which employers and administrators exhausted, or no longer can use, those opportunities.

1 hour ago, ESOP Guy said:

While Peter's answer is the right answer.  It is my understanding the plan has a burden to keep the records to show this person was paid.  

Bird's answer is the most practical answer.  I find if someone talks the person and points out the notice does say "may" be owed a benefit and the plan's records show they have been paid the person goes away 99.99% of the time. 

It is only if they don't go away after that you need to really start to go down the road Peter layouts out as a practical matter. 

Just to be clear have the client look for old records that might show if the person was paid or not.  To make sure their benefit wasn't forfeited because they were lost of something like that.  If the plan owes them the benefit the plan ought to pay the benefit.

This by the way brings me back to a pet peeve of mine.  Do those stupid "D" codes on the 8955-SSA.  That would solve this.  As I tell people all the time:  When in doubt D.   I have yet to see a D code to come back and bite me.  I am asked all the time, "but what happens if we put a D code in and there wasn't an A code?".  I have never seen that cause an issue.  So when in doubt D. To the point if the client thinks they have old SSAs it might be worth to do a clean up filing this year to make sure anyone paid out and might have never had a D code filed gets one now. 

I'm not sure how common it still is but we have had participants in the past receive the SSA letters and come to us even though we have an old Sch SSA or newer 8955-SSA showing they were reported with code D to remove them.

4 hours ago, Bird said:

I believe the notice said she might have a benefit.

Odds are probably pretty good that she got paid but it wasn't un-reported.  I'd probably push back and tell her to prove it.  I don't think there is standard operating procedure for this stuff.

You would be asking her to prove a negative.  I believe the onus is on the plan sponsor to prove the benefit was settled.  Otherwise, they owe her the benefit.

5 hours ago, Lou S. said:

I'm not sure how common it still is but we have had participants in the past receive the SSA letters and come to us even though we have an old Sch SSA or newer 8955-SSA showing they were reported with code D to remove them.

I have seen it with the older SSAs as they were paper which means someone at the IRS had to input the data on the form into some system.  Like anything that isn't going to be perfect. 

Since it has gone electronic I don't think I have seen it.  

19 hours ago, acm_acm said:

You would be asking her to prove a negative.  I believe the onus is on the plan sponsor to prove the benefit was settled.  Otherwise, they owe her the benefit.

No, we would be asking her to prove she is entitled.  I don't believe a letter from SSA saying there might be benefits creates a liability.  Would you really, willy-nilly just pay someone based on that?  How much?

35 minutes ago, Bird said:

No, we would be asking her to prove she is entitled.  I don't believe a letter from SSA saying there might be benefits creates a liability.  Would you really, willy-nilly just pay someone based on that?  How much?

I think the point was that you are asking the participant to prove that he/she did not receive a distribution, which would be "proving a negative".

If participant says they dont have a record of getting a distribution, I think it is on the plan to show that they did.  The plan sponsors failure to keep records could be an issue.  I would not simply pay out, but I dont think the plan can say "sorry, due to our poor record retention we dont know if you got paid, so we cant pay you out unless you prove that you didn't paid"

Sponsor/TPA is going to have to do the heavy lifting to come up with the answer.

This discussion is a nice illustration about why an employer/administrator might prefer to keep its own records, independently from the recordkeepers’ and custodians’ records.

Don’t just leave those quarter-yearly transaction reports posted to the recordkeeper’s “sponsor service center” internet site.  At least copy each digital file onto the plan administrator’s computer drives and further storage.  And use considered file-naming and other methods so you can remember and retrieve what you’ve kept.

In the 1980s, it wasn’t easy.  But now, we can help lead clients to relatively inexpensive protections.

If the plan terminated in 1989, why were there subsequent TPAs?

Were the assets not all distributed?

29 minutes ago, Peter Gulia said:

This discussion is a nice illustration about why an employer/administrator might prefer to keep its own records, independently from the recordkeepers’ and custodians’ records.

Absolutely!  Just because you contract some of your duties and responsibilities out to others, you need a fail safe.  In the event of catastrophic failure,  there might not be anyone left to compensate you for the contractual breach.

And, with the Final 5500, you do an SSA with all D's just in case.

3 hours ago, RatherBeGolfing said:

I think the point was that you are asking the participant to prove that he/she did not receive a distribution, which would be "proving a negative".

I'm not asking someone to prove they did not receive a distribution; I'm asking them to prove that they were entitled to something, ever.  The SSA letter is not proof of anything other than the fact that someone once reported that they had deferred benefits.  A starting point for the participant would be to come up with something corroborating this.  What percentage of SSA letters do you think are valid?  I'd bet in cases where the sponsor/administrator doesn't already know about a valid claim, it's less than 25%, and seriously doubt it is over 5-10%, if that.  Are you saying everyone should start paying benefits based on such lousy odds?

3 minutes ago, Bird said:

Are you saying everyone should start paying benefits based on such lousy odds?

Absolutely not.

4 minutes ago, Bird said:

I'm not asking someone to prove they did not receive a distribution; I'm asking them to prove that they were entitled to something, ever.

Thats kind of a chicken or egg question, no?  The sponsor is required to provide statement, notices, and disclosures to the participant. The fact that employee never received anything doesn't mean that they were never a participant, it could be a failure by the sponsor to provide them with statements and notices.  I don't think that you can require the employee to produce a document that the employer was required to provide to the employee, and then treat the lack of such document on the part of the employee as an indication that he/she was never a participant.  I think that the the SSA notice is enough to put the document or research burden on the plan, not the participant.  If the sponsor can't put their hands on those documents, its on them to try harder and spend more in order to get an answer.  Again, Im not saying pay out, Im saying we keep sloppy records is not an answer.

16 minutes ago, Bird said:

What percentage of SSA letters do you think are valid?  I'd bet in cases where the sponsor/administrator doesn't already know about a valid claim, it's less than 25%, and seriously doubt it is over 5-10%,

I think most of them are people who got paid out but never removed from the SSA list as a code D, rather than employees who were never entitled to a benefit at all.

An answer like we went through our records and you were never vested or you were paid in 19XX is sufficient, but "prove it!" isnt.

34 minutes ago, Bird said:

I'm not asking someone to prove they did not receive a distribution; I'm asking them to prove that they were entitled to something, ever.  The SSA letter is not proof of anything other than the fact that someone once reported that they had deferred benefits.  A starting point for the participant would be to come up with something corroborating this.  What percentage of SSA letters do you think are valid?  I'd bet in cases where the sponsor/administrator doesn't already know about a valid claim, it's less than 25%, and seriously doubt it is over 5-10%, if that.  Are you saying everyone should start paying benefits based on such lousy odds?

I think ERISA frowns upon this as it's the Plan Administrator's obligation to retain plan records on determination of benefit payments, not the participant's burden to show they are due payments. In fact I believe some of that is how we got ERISA in the first place so many years ago.

On 9/4/2020 at 10:09 AM, BG5150 said:

If the plan terminated in 1989, why were there subsequent TPAs?

Were the assets not all distributed?

The participant terminated in 1989, not the plan.

oops

On 9/4/2020 at 2:03 PM, Bird said:

I'm not asking someone to prove they did not receive a distribution; I'm asking them to prove that they were entitled to something, ever.  The SSA letter is not proof of anything other than the fact that someone once reported that they had deferred benefits.  A starting point for the participant would be to come up with something corroborating this.  What percentage of SSA letters do you think are valid?  I'd bet in cases where the sponsor/administrator doesn't already know about a valid claim, it's less than 25%, and seriously doubt it is over 5-10%, if that.  Are you saying everyone should start paying benefits based on such lousy odds?

The original poster specifically said "finding the detail as to what happened to her account (paid/rolled to default IRA) has been challenging."  She had an account.  The plan sponsor is not sure whether they paid it out.  That *is* the question, so your suggestion would, in fact, be asking the participant to prove they weren't paid out (a "negative").

17 hours ago, acm_acm said:

The original poster specifically said "finding the detail as to what happened to her account (paid/rolled to default IRA) has been challenging."  She had an account.  The plan sponsor is not sure whether they paid it out.  That *is* the question, so your suggestion would, in fact, be asking the participant to prove they weren't paid out (a "negative").

I don't care that much about the semantics.  What caught my eye in your original post was "I believe the onus is on the plan sponsor to prove the benefit was settled.  Otherwise, they owe her the benefit."  And I totally disagree with that.  There might be a rare case where I'd advise the sponsor to pay...something (how much?!)...but the SSA letter, in and of itself, is not proof of anything other than someone once reported that money was owed.  

1 hour ago, Bird said:

SSA letter, in and of itself, is not proof of anything other than someone once reported that money was owed.  

Agreed.  But you still think the recipient is the one who has to prove that there is a benefit even though the plan sponsor is required to keep those records?

2 hours ago, RatherBeGolfing said:

Agreed.  But you still think the recipient is the one who has to prove that there is a benefit even though the plan sponsor is required to keep those records?

Shrug.  I just find it offensive that someone can wave a (generally meaningless) piece of paper and the default seems to be that money is owed to them.  But I find it equally offensive to say that poor recordkeeping is a reason not to pay a legitimate benefit.  Definitely a lot of gray there.

On 9/9/2020 at 9:06 AM, Bird said:

semantics

LOL