Is Your Term Vested Data Audit Ready? Understanding the TVPP

In 2017, the U.S. Department of Labor (DOL) launched its Terminated Vested Participants Project (TVPP). The TVPP aims to ensure that defined benefit pension plans:

• Maintain adequate records regarding plan participants.
• Have appropriate procedures for advising participants with vested accrued benefits of their eligibility to apply for benefits as they near normal retirement age and the date they must start required minimum distributions (RMDs) under federal tax law.
• Implement appropriate search procedures for terminated participants and missing beneficiaries.

While many government programs are in a state of uncertainty under the new presidential administration, there has been no indication the DOL’s Employee Benefits Security Administration intends to decrease the number of TVPP audits it performs annually. Companies that offer defined benefit pension plans can look to the agency’s Compliance Assistance Release 2021-01 for useful insight to safeguard their plans. CAR 2021-01 provides Employee Benefits Security Administration (EBSA) investigators with a process they are expected to follow when investigating plan administrators.

Especially helpful is a list of red flags that help investigators identify compliance issues and encourages a deeper look for plans that have multiple failures such as:

• Systemic errors in plan recordkeeping and administration that create a risk of loss associated with the failure of a terminated vested participant or their beneficiary to enter pay status before death or the imposition of excise taxes on RMD amounts.
• Inadequate procedures for identifying and locating missing participants and beneficiaries.
• Inadequate procedures for contacting terminated vested participants nearing normal retirement age to inform them of their right to commence payment of their benefits.
• Inadequate procedures for contacting terminated vested participants, and the beneficiaries of deceased terminated vested participants, who are not currently in pay status but are near the date that they must commence RMDs as the plan must inform them of what they must do to enter pay status and avoid RMD excise taxes.
• Inadequate procedures for addressing uncashed distribution checks.

While addressing the root cause of these red flags will likely minimize future compliance issues, the guidance provides details to help flesh out ongoing or historical data issues a plan may have. Some examples would be:

– CAR 2021-01 notes that plans sometimes contained “clearly flawed data,” such as birthdates listed as “1/1/1900” or names using “John Doe” placeholders and this is indicative of a plan that needs a closer look.

• Uncashed benefit checks and returned participant mail suggest the plan lacks adequate contact information. Similarly, “more than a small number of” plan participants who have reached the RMD age but haven’t claimed their benefits also indicates a lack of properly maintained contact details.
• Continuing to send required communications to bad addresses without attempting to find a correct address suggests plan fiduciaries aren’t properly using missing participant search and location services provided by their plan’s record keeper or other service providers.

Also, the release instructs that “Fiduciaries should carefully monitor the performance of retained, third-party search firms and ensure that they are complying with any applicable contractual commitments regarding missing persons.”  This is especially true in today’s industry when results may vary greatly from provider to provider and you have a fiduciary responsibility to make sure that your current process is acting in the best interest of the participants, utilizing the DOL’s best practices for missing or lost participant accounts prior to taking any action.

Because these issues surrounding retirement plans can be complex, plan fiduciaries often benefit from assistance reviewing their processes and plan data for potential problems. MarketSphere Retirement Reunification Services can help you work through the challenges that may represent “red flags” as defined by the CAR 2021-01 and help you with issues that could potentially be raised by TVPP investigators. Contact our Retirement Reunification Services team for more information.