From time to time pension plan sponsors are audited by the Internal Revenue Service (IRS) or the Department of Labor (DOL). One issue that often comes up during an audit is the process for locating lost participants or beneficiaries who are entitled to plan benefits.
Plan sponsors need to have well-defined procedures in place to perform a diligent search for lost participants. Otherwise, they could end up spending a lot of time documenting the details or defending their actions (or inactions) in an audit.
Milliman’s latest issue of DB Digest by David Benbow explains what steps the IRS or DOL expects plan sponsors to follow and document when searching for lost participants. To read the article, click here.
One of the most daunting challenges a pension plan can face is distributing required minimum distributions (RMDs) at a terminated vested participant’s required beginning date (RBD). The RBD is akin to cleaning house for the Internal Revenue Service (IRS) because tax-deferred income must start being taxed by the statutory date. Ostensibly, this income will be taxed in full within the participant’s lifetime.
The fall is the perfect time to take stock of which participants (including alternate payees, spouses, and non-spouse beneficiaries) are required to commence payment by April 1 of the following year. Any corrective actions that need to be taken for those participants who missed their RBDs may be completed before filing Form 5500.
To read more about cleaning up with required minimum distributions, read Jennifer Godwin’s article here.
There are several pros and cons for defined benefit (DB) plan sponsors to consider before moving to a paperless records management system. The DB digest article “Paper records: Can we shred them yet?” by Milliman’s Stephanie Sorenson explores the advantages of converting to a paperless system. In the article, Stephanie also discusses the regulatory guidelines and administrative questions plan sponsors need to think about before making such a conversion.
Monitoring the life status of pension plan participants and beneficiaries is an important fiduciary requirement. The inability to locate them can produce an administrative burden for plan sponsors. The latest DB Digest article, “Fiduciary responsibilities: Wanted dead or alive,” by Milliman’s Verna Brenner highlights three auditing strategies plan sponsors should consider to effectively track retirees.
Lump-sum windows can present a “win-win” scenario for both defined benefit (DB) pension plan sponsors and participants. Sponsors can decrease their Pension Benefit Guaranty Corporation (PBGC) premiums by reducing the amount of participants within a plan. On the other side, participants in need of cash can benefit from a lump-sum payout.
Before implementing a lump-sum window, sponsors must first consider the various administrative aspects related to such an offering. The DB Digest article “Lump-sum windows: Administrative tips to consider” by Nicholas Pieper highlights these nine administrative tips that can help plan sponsors with the process.
• Identify the eligible population
• Clean up the data
• Seek legal counsel assistance
• Determine the duration of your window
• Set a manageable deadline
• Deliver an announcement mailing
• Anticipate participant inquiries
• Create the ultimate lump-sum window packet
• Prepare for special circumstances
To learn more about lump-sum windows, click here.
Data cleanup can help defined benefit (DB) plan sponsors avoid incorrect participant payments and the cost associated with correcting mistakes. Milliman’s Audrey Palmer discusses the potential mishaps that may result from inadequate pension data and the benefits of data cleanup in the DB digest article “Why good data matters.”
Here is an excerpt:
Each year, your plan’s compliance with Internal Revenue Service and Department of Labor regulations also depends on the integrity of the plan’s data. Incomplete or incorrect data can potentially cause noncompliance with many plan-disqualifying regulations, including disclosure requirements, minimum funding requirements, and minimum coverage, participation, and vesting requirements. It can also cause a serious financial burden to participants when excise taxes are imposed that are due to late payment of required minimum distributions. …
… A data cleanup project can make a significant impact to the ongoing administration of your plan by enhancing the individual participant experience, helping to ensure compliance with regulatory requirements, and keeping the plan agile and able to respond to an ever-changing financial and regulatory landscape.
The up-front cost of a data cleanup project is justified when care has been taken to identify the gaps that are easiest to close and will make the most impact. Milliman consultants have experience with this prudent analysis and can help determine which cleanup projects will produce the best return on investment.
An essential part of any data cleanup project is an evaluation of the ongoing periodic data files that provide the participants’ statuses, compensation, hours, and any indicative data to the recordkeeper. Each payroll should undergo a validation check to make certain the expected population, expected totals, and expected statuses are loaded with each file. These checks, combined with a comprehensive analysis of the file produced by the plan sponsor, will catch most errors that could cause ongoing data issues.