Form SSA and Missing Benefits
A plan sponsor recently asked us about the Form SSA and the consequences of filing that form. The sponsor had filed a Form SSA for an employee who left the service of the company several years ago. Recently, when the former employee applied for Social Security benefits, he received a notice from the Social Security Administration that he had benefits in our client's plan. The plan sponsor believed that the distribution had been made after the filing of the Form SSA, but could not find a copy of the check (or the statement showing that it was negotiated) to prove that a distribution had been made.
As background, a Form SSA must be filed either for the year that a participant terminated employment or for the year following the year in which the participant terminated employment--if the participant's benefits have not been distributed. The SSA is attached to the Form 5500, and the information is forwarded to the Social Security Administration. In turn, the Social Security Administration gives that information to the former employees when they apply for Social Security benefits.
While that rule is fairly well known, it is less known that, when a distribution is made to such a participant, the plan sponsor/administrator may file another Form SSA which reflects the payment of the benefits. The intended effect of the second Form SSA is to remove the participant from the notification process at the Social Security Administration. Because the filing of the second SSA was permitted, but not required, few third party administrators and bundled providers prepared the second SSA and, as a result, few employers have been "purging" their records at the Social Security Administration. A likely consequence of that failure is that increasing numbers of former participants will be asking about their retirement benefits when they reach Social Security retirement age and apply for those benefits. As a result, plan sponsors may need to keep records for several decades in order to be able to prove that distributions were actually made.
In the last paragraph, I noted that updated SSA Forms had not been required. However, that has changed. The 2004 Form 5500 package has just been released by the government. (The 2004 forms must be used for this plan year.) The instructions for the updated Form SSA now require that, where an SSA has been filed, but benefits are subsequently distributed, a new SSA must be filed to reflect that fact. Unfortunately, the instructions are not clear about how the requirements apply where the distributions occurred prior to the 2004 plan year.
As a word of advice, we recommend that:
- The initial Form SSA not be filed for the year in which a participant leaves employment, but instead be filed for the year following that year (to allow for the distributions that might be made in the "extra" year).
- Distributions be made, whenever possible and as soon as possible, to participants who are no longer employed by the plan sponsor.
- Forms SSA be filed in the 2004 5500 for those cases where participants received distributions prior to 2004, but after an initial Form SSA.
If those three steps are followed, plan sponsors will be able to minimize future time and effort--and the possibility of a required double payment of benefits.
Just to finish the story about our client ... we were able to demonstrate, to the satisfaction of the former participant, that his benefits were paid to him. That is because the sponsor found partial records indicating that the distribution was made after the filing of the initial SSA. However, it would have been far easier, and involved less risk, if an SSA had been filed after the distribution.
© 2004
Reish Luftman Reicher & Cohen. All rights reserved. The ERISA Report for Plan Sponsors is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish Luftman Reicher & Cohen does not warrant and is not responsible for errors or omissions in the content of this report.
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