Report: DOL Launching Focus on Benefit Payment Practices

The Department of Labor (DOL) is rolling out an initiative focused on the investigation of benefit payment practices, focusing on three key areas.

According to a blog post by the law firm of Morgan Lewis & Bockius LLP, the new initiative is focused on the defined benefit plans of a number of Fortune 500 companies. The investigations are concentrated on plan procedures in the following areas:

• locating missing participants;

• informing deferred vested participants that a retirement benefit is payable; and

• commencing benefit payments when the participant reaches age 70½.

According to the report, the initiative was launched out of the Philadelphia regional office, but the DOL has indicated that it intends to expand the investigation further.

The law firm notes that the issue of benefit payments, and particularly those made in connection with the participant reaching age 70½, has long been on the radar screen of the IRS, but the DOL’s interest is more recent. According to reports, this interest stems from the influx of inquiries that the DOL receives each month after the Social Security Administration mails Potential Private Retirement Benefit Information Notices to recipients regarding pension benefits that might be owed.

DOL Discoveries

Morgan Lewis says that the DOL’s discoveries include:

• some plans under investigation have procedures for locating missing participants, but the procedures are not being followed in practice; and

• at least a few of the plans seemed to have significant recordkeeping problems and could not verify the age of their participants, with the obvious consequence that the plans could not pay participant benefits when required.

‘Plug’ Dates

They go on to state that a representative from the DOL has said that investigators have found numerous problems with plan records, such as individuals who appear to be over 100 years old with birthdays identified by what are clearly “plug” dates. Thus far, the blog states that the DOL has identified more than $500 million in unpaid pension benefits that are owed to participants over the age of 70½.

Ahead of this initiative getting underway, the law firm notes that it may be a good time to revisit plan procedures for addressing both missing participants and gaps in plan records, and that plan sponsors and administrators may consider conducting a high-level review of plan procedures relating to the location of missing participants and the adequacy of participant records or, more proactively, a targeted undertaking such as a missing participant search and/or a demographic data clean-up initiative.