Missing Plan Participants – Recent Guidance
Charles C. Shulman, Esq.
March 31, 2021
(Revised Aug. 2021)
A common problem in plan administration is finding missing participants. Sometimes these lost participants simply cannot be located. Other times they can be located but they do not accept distribution packages with respect to their benefits.
Field Assistance Bulletins.
DOL Field Assistance Bulletin 2004-02 stated that certain methods of finding participants be used because they have a high degree of success and are relatively inexpensive. These methods are as follows: (i) certified mail, (ii) plan records of participants in other plans maintained by the employer, for example, a health plan, (iii) using a designated beneficiary to locate a participant, (iv) using the IRS or Social Security Administration letter-forwarding service. However, both these letter forwarding programs were discontinued (the IRS program in 2012 and the SSA program in 2014).
DOL Field Assistance Bulletin 2014-1 sets forth the DOL’s current views on the proper fiduciary steps to follow in connection with locating missing participants. It prescribes the search steps that must be used in locating the lost participant. Routine methods of regular mail or email will suffice most of the time. However more may be necessary if there is no response or the fiduciary believes it does not have a current address. Certified mail should be used to find out if the participant can be located. FAB 2014-1 notes that the DOL model participant notice for plan termination can be used. A search of the employer records including plan records for other plans maintained by the employer such as health plans should be done. Asking designated beneficiaries of the participant for the location of the participant should be done. Use of free internet search tools such as Internet search engines, public record databases, obituaries and social media should be utilized. Possible additional searches include internet search tools that charge a fee, commercial locator services, credit reporting agencies and investigative databases. If a participant still cannot be located, the preferred method of distributing the account from the plan is to establish an IRA rollover account following the general procedure for distribution of cash-out amounts between $1,000 and $5,000. This amount would be rolled over to an IRA which would be invested in an investment designed to preserve principal and provide a reasonable rate of return. There is a strong preference for rollover distributions because if funds are otherwise distributed, there will need to be 20% mandatory withholding. Another alternative is to furnish the funds to the state unclaimed property fund. Many states maintain funds with web internet access sites listing the names of individuals who are due funds from one source or another. Some state funds accept plan distributions on behalf of missing participants. Although the Department of Labor in Opinion 94-41A takes the position that state funds may not be automatically escheated to the state, the fiduciary may reach the conclusion that this is the proper course of action where it is necessary to distribute all funds in order to complete the termination of the plan.
DOL Best-Practices Memo. A DOL “best practices” memo – “Missing Participants – Best Practices for Pension Plans,” (January 12, 2021), www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance/best-practices-for-pension-plans, outlines how fiduciaries of defined benefit plans and defined contribution plans can handle missing participants. The Best Practices memo outlined red flags that the DOL looks for as indicators of missing participant issues, including: a significant number of participants who are nonresponsive, a significant number of terminated vested participants reaching normal retirement age who have not started receiving benefits, incomplete contact information and census data and absence of sound policies for handling returned mail and uncashed checks. The 2021 Best Practices memo also gives examples of best practices, including:
- Maintaining accurate census information for the plan’s participant population (including contacting participants and beneficiaries on a periodic basis to confirm or update their contact information, including contact information change requests in plan communications, flagging undeliverable mail/email and uncashed checks, requesting updates to contact information for beneficiaries, regularly auditing census information, and in the case of a change in record keepers or plan sponsor, addressing the transfer of appropriate plan participant and beneficiary information and relevant employment records);
- Implementing effective communication strategies (including using plain language and offering non-English assistance, encouraging employees to notify the plan of any change in contact information and encouraging information contact through plan websites and toll-free numbers, building steps into plan enrollment for new employees and exit procedures for separating employees to confirm or update contact information, communicating options about consolidating accounts from prior employer plans and marking correspondence with the original plan or sponsor name where this has changed after participants separated);
- Conducting missing participant searches (including checking plan and employer records for participant, beneficiary and emergency contact information, checking with designated plan beneficiaries and emergency contacts for updated contact information, using free online search engines, public record databases, obituaries, and social media to locate individuals, using a commercial locator service or credit-reporting agency to locate individuals, mailing certified mail or mail with tracking features to the last known mailing address, attempting contact via email addresses telephones and social media, searching death Indexes, contacting colleagues of missing participants or by publishing a list of missing participants on the company’s intranet, reaching out to a union’s local offices and registering and publicizing missing participants on public and private pension registries with privacy and cyber security protections); and
- Documenting procedures and actions (including putting applicable plan policies in writing, documenting key decisions and the steps taken to implement the policies, ensuring third-party record keepers are performing agreed upon services, and working with the record keeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices).
PBGC Missing Participant Program for Terminating Defined Benefit and Defined Contribution Plans.Under the Pension Protection Act of 2006, the single-employer missing participant program required to be maintained by the PBGC is extended to terminating single-employer and multiemployer pension plans and defined contribution plans, and defined benefit pension plans that are not covered by the PBGC because they have no more than 25 active participants. ERISA § 4050(d). In December 2017, the PBGC finalized regulations first proposed in 2016 that expand its existing Missing Participants Program to cover terminated 401(k) and other defined contribution plans and defined benefit plans that are not currently covered by the program. PBGC Reg. §§ 4050.101 to 4050.407, 82 Fed. Reg. 60800 (Dec. 22, 2017). Under ERISA § 4050 as amended by PPA 2006, the PBGC is required to operate a missing participants program for single-employer plans and multiemployer plans covered by Title IV of ERISA. It also may maintain an optional program for defined benefit plans not covered by Title IV of ERISA and for defined contribution plans. The regulations establish missing participant programs for terminating multiemployer defined benefit plans covered by Title IV (PBGC Reg. §§ 4050.401 to 4050.407), terminating professional service employer defined benefit plans not covered by Title IV (PBGC Reg. §§ 4050.301 to 4050.307), and for terminating defined contribution plans (PBGC Reg. §§ 4050.201 to 4050.207). The regulations also make changes in the existing Missing Participants Program including providing for (i) fees to be charged for plans to participate in the Missing Participants Program; (ii) a requirement to treat as missing certain nonresponsive distributees with de minimis benefits subject to mandatory cash-outs under the Plan’s terms; (iii) stricter requirements for diligence searches, including sponsor and related plan records, free web search methods and commercial locater services; (iv) fewer benefit categories and fewer sets of actuarial assumptions for determining the amount to transfer to the PBGC; and (v) changes in the rules for paying benefits to missing participants and their beneficiaries. The program is mandatory for PBGC for single-employer plans and multiemployer plans subject to Title IV and insured by the PBGC. The insured defined benefit plans are required to either (i) transfer the benefits of missing participants to the PBGC, or (ii) purchase annuities and provide the PBGC with information about the annuity provider. PBGC Reg. §§ 4050.103 and 4050.403. Participation in the Missing Participants Program for defined contribution plans and defined benefit plans not covered by PBGC insurance is voluntary.
A defined contribution plan program that participates in PBGC’s Missing Participants Program must either (i) transfer accounts of missing participants to the PBGC, or (ii) send the PBGC information about where the accounts of its missing participants were transferred. PBGC Reg. §§ 4050.203 and 4050.303. As part of the Missing Participants Program, the PBGC is creating a database that may be used to provide information about missing participants and their benefits. It would permit the public to search the database to determine whether it contained information about benefits available to a specific participant, but it would be designed in a way that would protect individuals’ privacy. A one-time fee, $35 initially, is charged for transferring a participant’s defined benefit or defined contribution benefit to the PBGC. Amounts of $250 or less could be transferred at no fee. The regulations are effective January 22, 2018, and apply to single-employer plans terminating after 2017 and to the closeout of multiemployer plans after 2017.
DOL Field Assistance Bulletin 2021-01, “Temporary Enforcement Policy Regarding the Participation of Terminating Defined Contribution Plans in the PBGC Missing Participants Program” (January 12, 2021) provides that the DOL will not pursue violations under ERISA §404(a) against plan fiduciaries of a terminating defined contribution plan (or a qualified termination administrator of an abandoned plan) in connection with the transfer of missing participants’ account balances to the PBGC in accordance with the PBGC’s missing participant regulations (PBGC Reg. §4050.101; discussed above), rather than to an IRA, certain bank accounts or the state unclaimed property fund per DOL Reg. §2550.404a-3, if the plan fiduciary complies with the guidance in this Field Assistance Bulletin and has generally acted in accordance with a good faith reasonable interpretation of ERISA §404. (This does not preclude the DOL from pursuing violations under ERISA for a failure to diligently search for participants prior to the transfer of their account balances to the PBGC.) The plan fiduciary who participates in the PBGC Defined Contribution Missing Participants Program must otherwise comply with the requirements of the safe harbor regulation at DOL Reg. §2550.404a-3 for distributions from terminated plans. Notices to participants must state that their account balances are being transferred to the PBGC’s Defined Contribution Missing Participants Program, and include the PBGC’s website and contact telephone number. A plan fiduciary can also transfer to the PBGC the account balances of participants who elected a lump-sum distribution of the entire account under the terms of the plan if that distribution was paid by check and the check remains uncashed after the cash-by date prescribed on the check (or 45 days if longer). A plan fiduciary may pay the PBGC charge from the accounts transferred to the PBGC Defined Contribution Missing Participants Program unless the plan prohibits such payment from the plan.
