Y2K Issues Now a Top Priority for Benefit Plan Fiduciaries
The inability of a computer to interpret the correct date of benefits information affects all aspects of plan administration. The most obvious problem is that computers will not be able to correctly interpret date-sensitive information. As a result, functions such as calculating and paying benefits could become snarled. Specifically, computers may not be able to:
- determine eligibility for benefits or vesting;
- accurately record terminations;
- track investment fund trades;
- record participant loans; or
- determine eligibility for retirement.
A Y2K problem could also affect management of a plan's investments. If the assets of a retirement plan are invested in companies that are Y2K compliant, those non-compliant companies may be bad investments for the plan. In addition, many employers’ computers provide links to service providers for their employees. While these systems may be compatible now, compatibility will have to be re-checked once both computer systems are Y2K compliant.
Too late for implementing a Y2K plan.
If a plan fiduciary does not have a Y2K plan in place, it is now too late. Under these circumstances, an employer should be working with a contingency plan. Unfortunately, a contingency plan would most likely involve going back and entering data by hand.
Liability for plan fiduciaries.
Fiduciaries of ERISA-governed plans will be held personally liable for losses resulting from their failure to prudently manage the Y2K problem. Government plans, which are exempt from ERISA’s requirements, are also well-advised to use DOL guidance regarding how benefit plans should approach Year 2000, since state courts will most likely find the DOL’s position relevant in any Y2K-related lawsuits against public entities.
Communicating a plan’s Y2K preparedness to plan participants is just as important as getting a Y2K plan or contingency plan in place. The DOL has issued guidance stating that plan fiduciaries must inform participants and beneficiaries of the steps being taken to ensure that the Y2K problem will not disrupt operation of the plan or payment of benefits.
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The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.