When plan sponsors decide to terminate a plan, there is often an expectation that the process be completed as quickly and smoothly as possible. While comprehensive project plans and procedures are designed to support this goal, the quality and accuracy of the data remain critical to the success of the project and transferring the liability to a selected insurer. Previous data clean-up efforts may not have resolved the unique challenges that arise during plan termination.

Milliman’s employee benefit practice has extensive experience providing consulting, administrative services, and project management for numerous plan termination projects. This article aims to highlight some of the common data challenges encountered during plan termination and offer guidance on how to address them—ideally, well before the final stages of the process.

Preparing data for plan termination

It is important that all participants are identified at the beginning of these projects. Experience shows this can be a challenge as it relates to participants who terminated long ago, deceased participants that may have a benefit due, deferred beneficiaries, alternate payees, and participants past their required beginning date (RBD). Outstanding payments to participants present different challenges and must be addressed as a requirement of plan termination is that all liabilities must be settled and trust assets go to $0.00 before the trust account is closed.

The steps included here will aid in resolving the common administrative challenges associated with these projects and satisfying the requirements of the Pension Benefit Guaranty Corporation (PBGC) to conduct a diligent search for participants.

1. Deaths

For a plan termination, the plan must make sure all possible benefits due to a participant can be paid – to someone. It is common to find deceased participants carried on the valuation for years after the date of death. These issues can happen for many reasons including no attempt being made to determine if a benefit was due at the time of death, the plan administrator being unable to locate the beneficiary at the time of death, or the death being reported by a death audit vendor but not acted upon.

At plan termination, it is imperative to determine if a survivor benefit is due for a deceased participant and if so, the beneficiary must be identified. Experience managing plan terminations indicates this process takes a fair amount of time to work through. The earlier the process gets started, the better chance of making sure these benefits are addressed correctly.

• Review participants included in the most recent valuation data with a death status.
• Determine whether a survivor benefit is due which may require obtaining a death certificate to validate marital status at the time of death.
• A commercial locator service may need to be engaged to identify the spouse and/or additional survivors.
• The sooner the search can be submitted, the better as it can take a few months before results are available.
• Once the search is complete, follow the plan’s existing administrative process to contact the beneficiary and/or next of kin as applicable to commence benefits or confirm address.
• If a beneficiary is identified after the plan termination process has started—that is, after notices have been mailed —the notices must be sent to the beneficiary as soon as possible.

2. Qualified domestic relations orders

A qualified domestic relations order (QDRO) is a court order that assigns a portion of a participant’s retirement plan benefit to another party, or an alternate payee (a spouse, former spouse, child, or other dependent of the participant). Any alternate payee due a benefit from the plan will be required to receive all plan termination notices. This is true for benefits that have already been split or for any alternate payee with a deferred benefit.

For known QDROs:

• Review the list of participants that have been flagged as having a QDRO.
• Confirm that a copy of the final order is available and on file. If not, the plan sponsor or administrator should contact the participant to request a final copy of the QDRO.
• The order should be reviewed to verify the name, date of birth (DOB), Social Security number (SSN) and address for the alternate payee listed.
• If the order is missing any identifiable information for the alternate payee, a search request should be submitted.
• Confirm that data needed to calculate the split of the benefit is available.

It is possible that a QDRO exists, but the participant was not flagged to indicate a QDRO has been assigned to their benefit. This can occur if the order was never submitted to the plan administrator. To address this issue and protect the plan, language instructing the participant to contact the plan administrator in the event they have a QDRO or divorce decree assigning a portion of their plan benefit to another party should be included in the Notice of Plan Benefits (NOPB). Similar language should be included in any benefit election materials to allow the participant to attest if a QDRO, divorce decree or other court order assigns a portion of their benefit to another party.

Ideally, alternate payees will be sent all required notices at the same time as the other plan participants. Alternate payees identified after the notices have been mailed should be sent notices as soon as possible once the plan is aware of the order.

3. Missing participants

Missing or lost participants present even more challenges, as it is possible the plan has been trying to locate these participants for some time. They are most often deferred vested participants and can include participants past their RBD. Additionally, this group may include retirees with uncashed checks and/or suspended payments.

• Review the list of known missing participants. Confirm documentation exists to show prior attempts to locate these participants.
• The list and notes regarding prior attempts should be shared with the plan’s attorney/ERISA counsel to allow for guidance as needed. Benefits may be forfeited in certain situations, and it is best to confirm if that is an option in your plan with the attorney/ERISA counsel.
• Submitting additional address searches for these participants may be a good idea to document a final attempt to locate them.
• For smaller plans where participants are located nearby, plan sponsors can also contact former colleagues or known family members in addition to conducting formal searches.

As part of the standard plan termination process, the plan must submit information and/or benefits for any missing participants in accordance with the rules provided in the PBGC's Missing Participants Program. The PBGC rules are updated from time to time and should be reviewed at the beginning of the plan termination process to confirm current compliance guidelines. The following points include comments based on current direction from pbgc.gov.

It is important to keep clear documentation/records of the steps taken to locate the missing participants, so it is available if requested during a PBGC audit.

4. Outstanding and/or stale dated checks

This section covers participants who were in pay status prior to an annuity placement related to the plan termination and have outstanding checks — meaning they have received physical checks that have not been cashed. At the conclusion of the plan termination, all outstanding and stale-dated checks must be resolved before the trust account can be closed. Addressing these issues should be part of the ongoing administration of the plan, but at it is important these checks are reviewed early and continue to be monitored at plan termination.

• Request an outstanding check report from the payment provider.
• If the payment provider stale-dates checks (not all providers do this), request a report to include anyone with a stale-dated check.
• Contact the participants to remind them of the outstanding payments and to determine if payments need to be reissued.
• Submit vendor searches as needed for participants the plan is unable to contact

It is possible a death will be identified during this process. It is also possible additional searches to contact next of kin are required. Starting this review early will allow for more time to address and hopefully resolve these outstanding payments.

5. Current retiree data review

Review of the data for the existing retiree population will provide more accurate data for the annuity purchase and result in more favorable pricing. Reviewing this data ahead of time should significantly decrease the number of questions from the selected insurer when data is provided.

• Complete death searches for all retirees and contingent annuitants–while this should be an ongoing administrative task, it is good to confirm the frequency of the death searches and that the retiree and contingent annuitant populations have been reviewed as the plan prepares for termination.
• Confirm that SSNs match the name of the payee.
• Confirm the original elected form of payment is available for all retirees.
• Confirm the contingent annuitant information is available for all applicable forms of benefit – name, DOB and SSN will be needed.

Summary

The following chart summarizes key tasks required to address the scenarios outlined in this article. After these steps are completed and information is received from the search providers, standard administrative procedures should be followed to initiate payments as appropriate.

Completing data reviews early and addressing the issues as quickly as possible will allow you as the plan sponsor to have the confidence that you’ve done everything possible to identify and contact all plan participants. This is not something only applicable to plans approaching plan termination-following these guidelines can also help open and accruing plans feel more confident in the plan liability and possibly reduce PBGC premiums. Milliman’s employee benefit practice is well equipped to help both existing and potential clients conduct these detailed data checks. Please reach out to your Milliman consultant or Lisa Grove for more information.

Learn more about how Milliman can help with plan termination:

• Is your pension plan ready to terminate?
• Administration considerations for a plan termination
• Defined benefit plan terminations: Is your plan document ready?