PRC Voices Concerns on Effect of Plan Information Electronic Recordkeeping

PRC Voices Concerns on Effect of Plan Information Electronic Recordkeeping


By David Brandolph

The U.S. Labor Department should address the challenges and risks faced by employee benefit plan members due to the electronic and digital recordkeeping of their plan information, the Pension Rights Center told the ERISA Advisory Council during recent testimony.

Pension Rights Center Senior Policy Counsel and Acting Legal Director Norman P. Stein, joined by University of Massachusetts Dartmouth Visiting Law Professor Anna-Marie Tabor, gave powerful testimony before the Council on the need to safeguard the access, retention and reliability of pension and 401(k)-type plan information in the face of regulations permitting plans to store such information electronically.

Together, Stein and Tabor, the former director of the Pension Action Center, a regional pension counseling and information center located at the University of Massachusetts Boston, voiced the concerns of employees and consumers who are often left out of the debate on electronic recordkeeping and other plan changes designed to promote administrative efficiencies and reduce costs.

Stein began by telling the Council, which is tasked with reporting its findings and recommendations to the DOL by year-end, that “electronic recordkeeping has left its imprint on almost every corner of ERISA.” Although it has made plan administration quicker and less expensive, “it has created new issues and sometimes compounded old unresolved ones.” Many of these issues interfere with the “ability of participants and beneficiaries to demonstrate entitlement to benefits they have earned, often decades earlier,” he said.

In his written statement to the Council, Stein said that a core issue for participants is the time that a plan needs to retain records.  If records aren’t “retained indefinitely, a participant’s eligibility for and benefit amount may not be ascertainable. Due to missing or inaccurate records, participants sometimes can’t prove benefit eligibility or establish vested rights or show they qualified for subsidized early retirement benefits or refute plan claims that their benefits have already been paid,” he said.

In addition, “civil cases involving fiduciary breaches under ERISA … sometimes involving benefit miscalculations and misrepresentations, are often dependent on the availability of accurate historical plan records,” Stein said.

The correct standard is that “records related to benefit amount or benefit eligibility must be retained so long as any possibility exists that they might be relevant to a determination of an individual’s benefit entitlements under a pension,” he said.

Stein also told the Council that it should rethink the questionable claims by recordkeepers that they aren’t fiduciaries.  He noted that “recordkeepers are responsible for most plan administrative functions and are often viewed by participants—and sometimes plan sponsors—as the real plan administrator. Unless recordkeepers are ERISA fiduciaries, they are essentially immunized from liability for any errors they make.” 

Tabor told the Council that the “quality of a retirement plan’s recordkeeping can make or break participant access to benefits.” She explained that she worked on or supervised cases “involving hundreds of participants who could not access their pension or 401(k) benefits at retirement.”  In those cases, she said that lost benefits were the most frequent problem encountered, and that “almost every lost benefit involved missing or inaccurate records.”

In one such example, she described a client, Ron, who had earned the right to a pension from a bank he had worked for during the 1970’s and 80’s, and later sought to begin receiving payments after reaching retirement age. Tabor said that Ron was told by the bank’s successor (resulting from subsequent mergers of his employer bank) that the current bank had no record of his pension. Instead, he was told that he likely received a pension distribution at some point during the preceding decades, even though the current bank had no record of the distribution.

Tabor told the ERISA Advisory Council that, after the Pension Action Center contacted the plan on Ron’s behalf, the plan denied having liability for benefits owed to any of the participants in Ron’s plan. “We knew that this was wrong,” Tabor said, “because we had already confirmed with the Pension Benefit Guaranty Corporation that the bank was paying premiums for Ron’s original plan.”

“It turned out that electronic recordkeeping was at the root of the problem,” she said. The records for employees of the original bank were included in an old database that wasn’t integrated into the plan’s newer systems. Consequently, “when participants in the legacy plan tried to claim their pensions, they were told – incorrectly – that they didn’t have a benefit,” Tabor said.

Tabor told the Council that she and her colleagues at the Pension Action Center remain deeply troubled that most participants don’t have access to legal resources to help them claim their benefits and may take that initial “no” from the plan as a final response when incorrectly told that no record of their pension exists.

Council member Dave Gray, with Fidelity Investments in Boston and representing corporate trust, asked how long, in the case of successor recordkeepers, should a prior recordkeeper be required to keep documents.

Tabor said the records should be kept for the lifetime of the participant, noting that a 10-year retention period that was suggested during earlier testimony would be insufficient. She said that in cases where a client suffers from a debilitating illness, or other circumstance, it may be impossible to put together a total benefits history unless a complete record is retained by the recordkeeper.

Stein agreed that records need to be kept indefinitely and suggested a number of other consumer-friendly recommendations that the DOL should adopt, including:

  • Issuing an interpretative bulletin or information letter clearly stating that records be retained so long as there is any possibility that that they may be relevant in determining a participant’s pension entitlement.
  • Creating an electronic shoebox for participants that would include for each participant documents relevant to their benefit entitlement that could be downloaded annually for updates.
  • Implementing educational efforts to make plan sponsors and fiduciaries aware of their recordkeeping responsibilities.
  • Imposing adequate penalties for noncompliance.

Stein’s statement is here. Tabor’s statement is here

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