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Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans, and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security, and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Michigan is representative of a common question about what a plan sponsor must do in response to a former participant receiving a potential benefit letter from the Social Security Administration.
“My client received a letter from the Social Security Administration (SSA) regarding potential retirement plan benefits in his former employer’s plan. What is the obligation of the plan sponsor to respond to this letter? ”
No specific ERISA or IRS rule requires the plan sponsor to act solely because of the SSA letter. However, ERISA fiduciary duties and DOL guidance on missing participants mean the sponsor should respond appropriately.
The SSA sends the "SSA Potential Private Retirement Benefit Information” letter to individuals who have applied for Social Security benefits to inform them, based on information previously provided by plan administrators to the IRS (via IRS Form 8895-SSA), that they may have private retirement benefits available. The individual is advised to contact the plan administrator listed in the letter and ask about any benefits that may be owed. It is important to note that the letter is not a guarantee that the individual is owed a benefit; it is just a notice that a potential benefit MAY exists.
These letters often confuse both former participants and plan sponsors because they frequently cite stale information. For example, the participant may have previously taken a distribution of their account, and the plan administrator did not update the IRS. This can frustrate both the individual and the plan sponsor.
If a current or former plan participant provides their plan sponsor or administrator with one of these SSA letters, the plan sponsor or administrator should conduct a thorough review of the plan’s files to locate the account of the former participant and determine whether there is any balance in the account, and, if not, what happened to the balance.
In a perfect world, this review would be simple because the plan sponsor should have easy access to plan records. However, if there have been changes in recordkeepers, plan administrators, or even mergers/acquisitions, the information may not be so readily available. In such cases, the plan sponsor may need to contact former plan fiduciaries to assist in locating the former participant’s account to determine whether a full distribution has been made.
Upon completion of the review, the plan sponsor should send a letter to the former participant that outlines the information it discovered (e.g., the date that the participant took a full distribution of their account; that the money was rolled into an IRA and where; or, in the case of lost records etc., details regarding the steps taken to verify that there was an outstanding balance, but that the plan sponsor was unable to verify that there was any benefit owed to the individual).
The receipt of an SSA Potential Private Retirement Benefit Information letter does not necessarily mean that a former participant is owed a benefit from the plan. It is a notice that a potential benefit MAY exist. If a participant informs the plan sponsor of such a letter, the plan sponsor should conduct a thorough review of the plan’s records and provide detailed information to the individual regarding the outcome of the review. If plan benefits are owed, the plan sponsor should notify the former participant how a distribution can be requested.