Notification for Nonvested Terminated Participants

The Department of Labor (“DOL”) recently clarified that retirement plans should routinely provide benefit statements to all participants that terminate employment with no vesting under the plan. 

Prior to the Worker, Retiree and Employee Recovery Act of 2008 (“WRERA”), Section 209(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA), required plan administrators to provide reports on participants’ “accrued benefits under the plan and the percentage of such benefits which are nonforfeitable.”  Under this provision, plan sponsors generally did not provide such reports to non-vested terminated participants on the theory that their entire “accrued benefit” had been forfeited upon termination.  

WRERA revised Section 209(a)(1) to tie the disclosure requirement to the requirement to provide “periodic benefit statements under section 105(a).”  Section 105(a) specifically requires that periodic benefit statements be provided to participants reporting on the participant’s total benefits accrued, the amount of nonforfeitable pension benefits and the date on which benefits will become nonforfeitable, and (if applicable) an explanation of the effect that a plan’s permitted disparity or a floor-offset arrangement has on the participant’s accrued benefits.  The Department of Labor has not yet issued regulations interpreting WRERA’s effect on notice to nonvested terminated participants; however, the DOL has stated informally in response to a question by practitioners that a benefit statement complying with ERISA Section 105(a) should be furnished to terminating non-vested participants.  

Accordingly, retirement plan administrators should consider routinely furnishing a “final” benefit statement to non-vested participants upon termination of employment, reflecting the information required by Section 105(a) of ERISA.  While the DOL’s interpretation is, at this point, informal, the penalty for non-compliance is significant - with penalties of up to $110 a day per participant affected possible.