Pat DiCarlo, counsel with Alston & Bird’s ERISA Litigation group in Atlanta, explains that the claims his firm is seeing are brought through defined benefit (DB) plans’ formal administration process and have not yet reached litigation. He tells PLANSPONSOR the trend is new but is becoming more prevalent.
“There are at least three different iterations of the claims,” he says. “Some claim they never received a distribution; some are saying not all their service was credited when calculating benefits. For example, if the employer went through mergers and acquisitions, the individual is saying he should have gotten credit for service with prior employers. And some claimants are spouses of deceased participants, who say they never signed a spousal waiver so the participant should not have received payment as a single life annuity that ended when the participant died.”
According to DiCarlo, a contributing factor to the rise of these claims is the large population of Baby Boomers retiring and the span of time over which records have not been retained or may have been lost. Adding defined benefit plan participation when individuals file for Social Security benefits also boosts the trend. “Along with estimated Social Security benefits, the administration is including notification of plans in which individuals may have participated,” he says. “Participants get this statement and think they’re owed a benefit, but the employer may not even have a record of the individual being a participant.”
David Weiner, a principal at David Weiner Legal in Chicago, also says there seems to be a surge of former participants who are re-engaging with old benefit plans (see “Tips for Fielding Lost Participant Claims”). He says the language of the Social Security notice can be quite misleading, because it tells individuals they “may be entitled to some private pension benefits upon retirement,” depending on whether they have already collected due benefits in the form of a cash distribution. Another sentence in the notice warns pre-retirees, “If you have already received payments from the plan, the amount shown on this notice should be disregarded.”
According to DiCarlo, when an individual makes a claim, the plan sponsor can ask for evidence that he or she was a participant and is owed a benefit. The plan sponsor can also offer evidence showing a payment was made. Most plans provide for an “arbitrary and capricious” review. If the plan sponsor has good evidence it can deny the claim, and it makes it hard for the claimant to file litigation. However, if the plan sponsor doesn’t have good evidence, it can also settle the claim and pay a benefit.
“Obviously, plan sponsors’ first line of defense against such claims is to retain good records, but at this point, that ship has already sailed,” DiCarlo says. “So, plan sponsors should have in place a good administrative process. Require individuals to show proof other than the Social Security notice that they have a claim.
DiCarlo contends plan sponsors may use “pattern and practice” type evidence even if they do not have original documentation showing someone was paid. “If [a plan sponsor] can show its normal procedures somehow document a payment was made, even if it doesn’t have a copy of a canceled check or benefits package anymore, it can say our process results in the record showing if it exists.”
However, plan sponsors can also consider whether it would be a better use of resources to settle or pay the claim. “It can settle with corporate assets and use a confidentiality provision if it is concerned about setting a bad precedent. That way, no one can post on a blog about how they brought a claim and received money.”