Is Your Plan Still Paying Benefits to Deceased Pensioners?Whitney Irish
Post By Zack Podrasky
One of the most important aspects of pension payments is the timely ceasing of benefits when a participant dies. The state of Illinois found this out the hard way. Between 2010 and 2014, some of the largest pension funds in Illinois incorrectly paid approximately 400,000 deceased pensioners over $3.5 million in benefits. Although some funds were eventually recovered, Plans should have policies and procedures in place to avoid this difficult and costly situation. This is why internal controls over benefits payments is one of the most important control processes a Plan/Plan Sponsor can have.
Some of the controls used to ensure deceased pensioners are not being paid incorrectly include (but are not limited to):
- Death searches. These are performed on an ongoing basis by an independent search firm, such as Pension Benefit Information, INC (PBI), who specialize in the verification of deaths
- Death Master File (DMF) search. The DMF is a federal database (accessible by subscription) which contains death information searchable by Social Security Number
- Follow-up letters. These are letters that are sent by the Plan/ Plan Sponsor directly to pensioners to verify the pensioner is still alive and the demographic data on file is correct
- Outstanding benefit checks over 30 days. Although this procedure does not prevent ineligible beneficiaries from cashing the checks, this would potentially identify a deceased pensioner for the Plan/ Plan Sponsor to investigate further before additional monthly benefit checks are generated.
- Online obituary search. A periodic internet search of pensioners over a certain age may identify pensioners who passed away
Luckily technology is making it easier and more cost effective for Plan/Plan Sponsors to identify potential deceased pensioners, but it is important to continue your due diligence with strong internal control procedures to identify and mitigate ceased pension losses.