Kaiora Tipene said the 20-year-old funding process no longer covers burial costs.
But the ministry claimed the complaints were only a tiny portion of the number of interactions it had with clients overall.
The Greens and Labour claim the sanctions will do nothing to encourage people into work.
The Government still hasn't developed its proposed traffic light system.
The ministry said it deleted the line because it was inconsistent with other guidance on its policies and practices.