Case study: Cleaning up death benefits in preparation for a plan termination

Background

Within the first year of outsourcing their defined benefit (DB) administration work to Milliman, a small church plan client announced that they intended to terminate their pension plan. This particular plan was co-sponsored by two hospitals in different locations. The plan had already closed new entrants to the plan, and later froze the traditional plan and ceased employee contributions and pay credits to the cash balance component. When the hospital location with greater participant count started making plans to merge with a larger hospital system, it was only a matter of time before the idea of terminating this slowly shrinking plan came to the table. As Milliman began to provide fully outsourced administration services for this plan, we uncovered many historical data issues for deceased participants.

Unlike private corporate defined benefit plan benefits, the Pension Benefit Guaranty Corporation (PBGC) does not insure church plan benefits. With the absence of relying on the PBGC to take over missing participants in the church plan world, it became apparent that we had our work cut out for us. We needed to make sure that we reviewed all the death benefits thoroughly to ensure that all benefits were settled. This meant reviewing any missed payments, ensuring that all death benefits were paid out, and identifying beneficiaries before the end of the project. While this case study focuses on death processing for plan terminations, many other data issues can arise in a plan termination. Additional guidance is available here on the Milliman site to help plan sponsors navigate this sticky process.

Historically, both hospital locations administered plan benefits in a co-sourcing relationship using a third party administration system. One of the vendors they had worked with in the past for many years was acquired by a competitor. This resulted in limited access to the vendor’s recordkeeping system and prohibited any system enhancements. This would ultimately lead to many system defects, limited capacity of data storage, and a lack of assistance with the data handling in the system. This purchase forced the client into a rushed conversion to full outsourcing to a new vendor. After only being onboard for a handful of years as a fully outsourced client with this new vendor, the client was advised of organizational changes for the vendor that would prevent them from staying onboard as a DB only client.

At this point, the client reached out to Milliman for assistance with their situation and Milliman offered a solution. We worked with the client to complete a conversion to our platform as a fully outsourced client. With the back and forth and rushed forced conversions and onboarding in their past, we were faced with data holes and inconsistencies caused by many ongoing administration changes. We were aware of the importance of paying special attention to the death benefit processing that transpired in the past.

Solution

We wanted to make sure that we had a full picture of all deaths in the data. With the hectic past transitions, we knew we would be facing data inconsistencies and possible disruptions in the ongoing administration for death processing. It was important for us to find a way to successfully document all of the review that we were performing for deaths to make it transparent for the client and us. The following is an outline of the plan to tackle death review in preparation for the upcoming plan termination:

• Mass death search. Before we even started to review the data, we took the entire defined benefit population – including alternate payees and beneficiaries – and ran them through a mass death search. We wanted to ensure that there were not any outstanding unknown death cases and wanted to get the results back before picking through the existing death data we had on file.
• Reconciling all death records in the recordkeeping system. This sounds like a given – and a small task. However, with the turnover from third-party administrator (TPA) to TPA involvement and inconsistent data, we ended up making a mass spreadsheet of every record in the system with an associated death date. We went through and documented dates of death for each record, benefit commencement dates (if applicable), and maintained a robust spreadsheet of all the information that we were able to research on the recordkeeping system with conversion data, and we also had access to the previous recordkeeper’s imaging data that we incorporated into this research. Documenting our footwork on this step was critical so that we could present information to the client in an organized way and minimize the amount of research needed on their end.
• Getting the client involved. It was inevitable that even after researching all of the information that was available to us, the client’s help would be needed in some instances (especially with older cases). Being able to present the data in an easy-to-read spreadsheet, along with the documented review, was helpful for the client to then pick up and research the paper or historical records on their end. We were able to demonstrate that we had done most of the legwork so that they could focus on the missing pieces that we needed from their end. At this stage, we were able to get some important paper files and fill in some missing pieces from their HR system to move this research along. Our analysts helped keep us on track by sending over updated spreadsheets on outstanding cases and updates to continuous research that had been done every week. This allowed us to keep a tally of where we were at in this process and allowed us to remain transparent with the client during this clean-up effort.
• Advanced relative searches for dead end cases. Because not everything has a perfect outcome, naturally we would run across the case with no absolute lead. In these cases, either no beneficiary forms were on file, there was no surviving spouse, or the client did not have any further information, so we needed to turn to our death search again and run those select cases through a more robust relative search. This search would typically provide us with at least three to four names of close relatives or friends who were tied to the searched participant, and enabled us to send custom verification letters. This would help prompt the receipt of death certificates and other leading information to determine how to move forward with beneficiary payouts.
• Uncashed check research. Often times people think of uncashed checks only in the sense that plan term payments had been made and participants did not cash them. However, death has to be considered as a possibility that needs to be looked at. There is always the risk that there are uncashed annuity checks that deceased retirees were due and never cashed.
• What to do with the lost death cases with no recourse to send to PBGC for a church plan. Lastly, as is the case with any plan termination, we did have a few cases where the beneficiary could not be located. This consisted of a mixed bag of cases where the beneficiary had deferred or outstanding uncashed payments and cases where the beneficiary could not be located. Because going to the PBGC with these cases was not an option, we had to get creative and reached out to one of our trustee partners as they have a solution for missing participants. We were able to assist the client in these discussions to get a contract signed to handle these missing cases. We worked with the trustee to establish accounts for these missing persons and the trustee assumed the responsibility to locate these individuals.

Outcome

Ultimately, we were able to get to a point where we felt confident with the death processing for the client. When it was time to pass the baton to the annuity provider, the client also felt a level of comfort that we had done our due diligence to make sure that the death data was researched thoroughly and all beneficiaries were accounted. Even if you are working on a plan that has fairly clean data and deaths are being processed and kept up with regularly, it is always a good idea to do a full death reconciliation. You never want to be in a predicament of having someone come out of the woodwork after the fact when the plan termination is completed. Being able to back into every death case and have documentation of the research that was done can help, especially when it comes to the point of signing off on all the filings and forms. It will also give everyone on the project, including your client, a sense of assurance.