What Is a Death Audit in a Defined Benefit Retirement Plan?

A death audit in a Defined Benefit (DB) retirement plan is a key process for identifying participants or beneficiaries who have passed away to prevent improper payments. DB plans are designed to provide ongoing pension payments to participants throughout their lives, so ensuring that payments stop once a participant has died is crucial for protecting the plan’s financial integrity. Without regular death audits, the plan could continue to make payments to deceased individuals, resulting in financial losses and potential legal liabilities for the plan sponsor.

Death audits typically involve cross-checking the plan's participant list against various databases, such as the Social Security Administration's Death Master File. Employers and multiemployer plans often partner with third-party firms to conduct these audits more efficiently, using both automated systems and manual review to identify deceased participants [1]. Regular death audits are important, as failure to promptly address overpayments can result in costly recovery efforts, fines, and reputational damage [2].

In addition to protecting the plan from financial overpayment, death audits are a critical component of a fiduciary's duty under ERISA (Employee Retirement Income Security Act). Fiduciaries must act in the best interest of plan participants, which includes ensuring that plan assets are properly managed and that payments are made only to those eligible to receive them [3]. If overpayments to deceased participants are discovered, plans may have difficulty recovering the funds, and plan sponsors could face penalties for failing to exercise prudent oversight.

Death audits are typically conducted on a quarterly or annual basis, depending on the size and complexity of the plan. Multiemployer plans, in particular, benefit from frequent audits, as they often cover a larger and more dispersed population of participants, making it more challenging to monitor deaths without systematic checks [4]. Additionally, regular audits help maintain compliance with the Pension Benefit Guaranty Corporation’s (PBGC) guidelines and support the plan’s overall risk management strategy [5].

In summary, death audits are a critical practice for Defined Benefit plans, ensuring that plan assets are not misused and that fiduciaries meet their obligations under ERISA. By preventing payments to deceased individuals, audits help secure the long-term financial health of the plan and protect the interests of both current and future beneficiaries.

References:

 [1] International Foundation of Employee Benefit Plans. (2023). Best practices for multiemployer retirement plan death audits. Retrieved from https://blog.ifebp.org/best-practices-for-multiemployer-retirement-plan-death-audits/
[2] Pension Benefit Guaranty Corporation. (2024). Evaluation report on multiemployer pension plan overpayments. Retrieved from https://oig.pbgc.gov/pdfs/EVAL-2024-01.pdf
[3] Pension Benefit Guaranty Corporation. (2024). What’s new in multiemployer pension plans. Retrieved from https://www.pbgc.gov/prac/whatsnew
[4] Segal Consulting. (2024). Multiemployer pension plan news for Q3 2024. Retrieved from https://www.segalco.com/consulting-insights/multiemployer-pension-plan-news-for-q3-2024
[5] Morgan Lewis. (2024). Dealing with the dearly departed in multiemployer defined benefit plans. Retrieved from https://www.morganlewis.com/blogs/mlbenebits/2024/03/dealing-with-the-dearly-departed-in-multiemployer-defined-benefit-plans

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