Inaccurate data is a recurring issue for both DB and DC plan sponsors, and yet it is often ignored until it creates problems. Data can become outdated when plan participants change jobs, or experience changes in life status.
Today's typical employee will change jobs numerous times throughout a career. Industries such as retail and hospitality are much more likely to have higher employee turnover rates because of a significant percentage of younger, more transient employees.
Participants might not place a high priority on updating contact information in the midst of life transitions. And with younger workforces, actions associated with such plans seem too far in the future to require immediate attention.
Yet, when participants fail to update their information, it doesn't remove the plan sponsors' fiduciary responsibility to maintain regular communications with them or mitigate the very real risk of fraud. We worked with one plan sponsor that discovered after a participant was deceased that a family member continued to receive and cash pension checks.
DC plan sponsors can encounter similar instances of fraud. Any efforts by the plan sponsor to reclaim the funds would likely require legal action against the perpetrators, resulting in legal and administrative fees. Often in such cases, legal efforts are unsuccessful because perpetrators spend the funds before they are caught by authorities. With clean data, plan sponsors can avoid these and other issues.
Failure to conduct routine data maintenance and management can raise regulatory red flags and affect your ability to fulfill routine communication requirements, such as regular statements, annual funding notices and summary annual reports. DB and DC plan sponsors often rely on outside resources such as their record keepers to maintain accurate participant data. Routinely, our clients come to us assured their plan providers have supplied accurate addresses, only to learn when mailings are returned that this is not the case.
The longer you wait to update participant data, the more complicated it might become to resolve, especially in scenarios where the participant has died and you are now left to track down beneficiaries.
Previously, plan sponsors could enlist the help of the Internal Revenue Service to communicate with missing participants about benefits or tax issues. For a relatively small fee, the IRS would search its database to locate the individuals, providing a reliable resource for current contact information. Last year, the IRS stopped this service. While the Social Security Administration has a similar service, it recently increased its fees to $35 per participant from $25 per participant.
Traditionally, plan sponsors have focused on mortality because they realize cost savings when they can remove participants from the plan. Yet, missing participants and uncashed checks can result in significant expense in both fees and personnel costs year after year. More importantly, when implementing strategic programs such as lump-sum distributions and other alternatives, the quality of all the participants' data can make or break the success of your program.