RESOURCES / FIDUCIARY RESPONSIBILITY

Address the problem of missing participants

5-minute read

THE TAKEAWAY

Strive to return retirement assets to former employees

Overview

Over the past decade, the problem of missing retirement plan participants — those with a balance in their former employer’s qualified retirement plan who have lost contact with the company — has steadily grown.

 

In their capacity as fiduciaries, plan sponsors are tasked with determining and taking appropriate steps to locate and distribute retirement benefits to former employees. The stakes are high. The Department of Labor (DOL) has also stepped up audit investigations into plan sponsors who may not be doing all they can to track down these “missing participants.”

 

This article delves into this issue and shares some potential solutions for plan sponsors. Fortunately, technology and new regulatory guidance have made it easier than ever for sponsors to address this problem.

Why do participants go missing?

In today’s transient workforce, it isn’t unusual for workers to leave a balance in their former employer’s retirement plan. As time goes by, these workers may lose track of the plans in which they have an account. It may not occur to them to contact their former employer with updated personal information. And, if that participant was automatically enrolled, it’s possible they may not even realize they have an account at all. Meanwhile, plan sponsors may lose track of employees when they move to a new residence, get married or divorced, change their name or pass away.

 

Missing participants are often the result of plan changes, such as mergers, acquisitions, recordkeeper changes or even a change to a plan sponsor's name.

Tips for success

Ask the plan’s service providers

Many plan sponsors believe that their plan’s third-party administrator (TPA) and/or recordkeeper are responsible for locating missing participants. But unless these providers have agreed to provide such a service, the plan sponsor is responsible. Therefore, the plan sponsor should ask service providers about their policies and procedures related to locating missing participants. Many recordkeepers can provide a report of participants with uncashed checks and undeliverable mail and/or email that can serve as a starting point for managing lost participants.

Consider a third-party service

Plan sponsors may consider delegating the responsibility to a third-party service provider that specializes in finding missing participants. It is important to remember that, while sponsors may delegate responsibilities to third-party service providers, it remains the sponsor’s fiduciary duty to ensure that the third-party provider’s procedures are adequate.

Establish a process

If the plan sponsor retains the responsibility for managing missing participants, the sponsor will need to determine the steps to take to locate missing participants. Any processes or procedures that are implemented should be documented and followed. Having sufficient documentation could be especially important in the case of a DOL audit.

Questions

Here is some additional information about the issue of missing participants.

  • While the failure to timely make a required minimum distribution (RMD) is among the potential qualification issues for a plan, the IRS has addressed this issue as it relates to missing participants. IRS field guidance directs auditors not to challenge a qualified plan for failure to make an RMD to a missing participant, provided certain steps have been taken to locate the participant.

  • The longer participants are missing, the more difficult it is to find them. Watch for early red flags like distribution checks, quarterly statements or service emails that are sent but returned undeliverable.

  • DOL guidance issued in January 2021 details steps that plan fiduciaries should consider to locate and distribute retirement benefits to missing or nonresponsive participants. While the DOL guidance does provide some helpful advice, it falls short of creating any type of “safe harbor” for plan fiduciaries to rely upon. It does, however, allow a plan sponsor to determine appropriate search measures for its particular plan, including balancing the size of the account involved against the cost of the search efforts.
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