Missing Plan Participants: What Are “Best Practices” for a Plan Fiduciary?
By Rachel Fetters, QKA
The term “fiduciary” refers to the high standard of care that one person owes to another, such as the duty that a trustee owes to a beneficiary. In a qualified retirement plan, the fiduciary is the person who exercises discretionary authority or control over the administration or management of the plan or disposition of its assets (ERISA Section 3(21)).
Locating missing plan participants is one of the many challenges retirement plan fiduciaries and their third party administrators (TPAs) face. While there is no official “missing participant” definition, the Department of Labor (DOL) Field Assistance Bulletin (FAB) 2014-01 states that participants are generally deemed missing if they fail to respond to an administrative notice or if mail sent to their address is returned.
Advantages to Having Best Practices
Some plan fiduciaries might wonder why they should bother finding missing participants. For one, they have to. According to DOL FAB 2004-02, plan fiduciaries are responsible for locating missing participants and providing them with options to distribute their benefits. With a written policy and consistent procedures, a retirement plan can establish best practices to handle the problems that missing participants can create.
Certain administrative fees (e.g., Pension Benefit Guaranty Corporation (PBGC) insurance premiums, TPA fees, and plan audit fees) are determined by the number of participants in the plan. So aside from fulfilling other requirements, locating missing participants and paying out their assets can also reduce plan administrative fees.
Prevention Is Key
Avoiding continued administrative and reporting requirements is one reason a plan fiduciary should prevent participants from going missing in the first place. Several actions can help accomplish this.
Scrub participant data when a participant separates from service—and annually thereafter. For example, when a participant separates from service, the employer may want to provide a clear, concise reminder about the need for the participant’s current address information while any funds remain in the participant’s account. (This is in addition to other required disclosures.)
Immediately follow up on instances of routine administrative forms coming back as undeliverable.
Periodically request contact information updates when participants log into the plan investment recordkeeper’s website.
Plan fiduciaries should implement best practices by having a written policy that outlines the steps to take in locating missing participants. This policy may be drafted directly into the retirement plan document. If it’s not, then the plan sponsor should have a separate written administrative policy in order to keep procedures consistent.
Locating Missing Participants
There are many tools that plan fiduciaries can use when searching for a missing participant. To provide additional guidance to plan sponsors, the DOL outlines a few options for locating missing participants in FAB 2014-01. These options include sending certified mail to the last known address, checking related plan and employer records, contacting the designated account beneficiary, and using free electronic search tools. A plan may also use alternative methods, such as credit reporting agencies, commercial search and locator services, and other Internet search services, including social media. Plan fiduciaries should keep in mind the cost of these measures relative to the missing participant’s account balance when determining the most appropriate search method.
In addition, the plan administrator can take advantage of the PBGC’s Missing Participants Program for plans terminating on or after January 1, 2018. The program was expanded to include certain small pension plans and 401(k) and profit sharing plans, which were previously excluded from this assistance.
Distinguishing Missing Participants from Nonresponsive Participants
A distinction must be made between missing and nonresponsive participants. A plan fiduciary must determine whether the participant is truly missing or is merely nonresponsive. For example, in an ongoing retirement plan, a nonresponsive participant may limit a plan fiduciary’s options because participant consent is required for a distribution if the participant’s vested balance exceeds $5,000. This means that for a participant that is merely nonresponsive, the employer typically may not force the participant out of the plan if the balance is over $5,000. In a terminating retirement plan, however, a nonresponsive participant may be treated as a missing participant.
Handling Missing Participants’ Assets
Once a plan fiduciary determines that a participant cannot be located after using all reasonable search methods, a participant is considered missing. The DOL’s preferred method for distributing the account of a missing participant is to place the funds in an IRA, regardless of the participant’s account balance. Sometimes rolling over an account to an IRA may not be an option. For example, challenges may arise if the missing participant has died and the beneficiary is unknown, or if the participant has attained the age when required minimum distributions must begin.
Alternatively, per DOL FAB 2014-01, the plan fiduciary may consider moving the account balance into a federally insured bank account, or, depending on state law, escheating the funds to the unclaimed property fund in the participant’s state of residence. As a best practice, the plan fiduciary should prudently consider—and avoid—options that will cause negative consequences to the participant’s account balance.
By establishing and following a written missing participant policy and instituting a few best practices, plan fiduciaries can fulfill their obligations—and potentially save money on administrative fees.